May NatWest be the proper FTSE 100 share for me?

Of all of the shares on the FTSE 100, NatWest Group (LSE:NWG) may very well be the one which finest combines progress and earnings, I imagine.

Based on Buying and selling View, since October 2019, the banking inventory ranks thirty third for share value efficiency and — based mostly on its dividends paid since October 2023 — its yield is the nineteenth highest. Individually, these may not sound that spectacular. Nonetheless, when thought-about collectively, it may imply it’s a super inventory for me to purchase.

However is it? Let’s have a look.

Taking nothing with no consideration

After all, the very first thing to notice is that previous efficiency isn’t essentially information to what’s going to occur sooner or later.

And dividends are by no means assured.

Nonetheless, analysts predict the financial institution’s earnings to develop. These ‘experts’ are predicting earnings per share of 46.8p this 12 months (2024), which is forecast to extend to 48.3p (2025), and 55.6p (2026).

Based mostly on the 2024 determine, the financial institution at the moment has a really cheap price-to-earnings ratio of seven.6.

However that is much like different banking shares within the FTSE 100. And all 5 of them have been attractively priced for a while now. It makes me suppose that sector as an entire is out of favour with UK buyers in the intervening time.  

By way of dividends, these similar analysts are forecasting a payout of 18.3p this 12 months. This suggests a yield of 5.1%, comfortably above the FTSE 100 common of three.8%. Wanting additional forward, the payout’s anticipated to be 19.2p in 2025, and 22.1p, in 2026.

If these estimates show to be right, by 2026, NatWest may have elevated its earnings by 16% and its dividend by 30%, in comparison with their 2023 ranges. With figures like these, there doesn’t look like a lot to dislike in regards to the financial institution.

Outlook

However there are dangers.

It seems as if we’re transitioning to a decrease rate of interest surroundings. Though this could cut back the chance of unhealthy loans, it should adversely affect the agency’s web curiosity margin.

Additionally, the financial institution derives most of its earnings from the UK. This makes it closely depending on the home economic system, which is struggling to develop in the intervening time.

The federal government’s additionally on the lookout for potential sources of income to assist fill a ‘black hole’ within the nation’s accounts. This makes me cautious that the Chancellor would possibly goal Britain’s largest banks with some type of windfall tax or different levy.

My verdict

Nonetheless, NatWest seems to be in fine condition.

It’s rising organically and thru acquisition. In July, it acquired the mortgage e-book of Metro Financial institution for £2.5bn. A month earlier, it purchased the retail enterprise of Sainsbury‘s Financial institution.

And based on Refinitiv, 11 brokers price the inventory as both a Robust Purchase or Purchase, 4 are impartial and two are advising their shoppers to Promote.

However as a lot as I stay a fan of NatWest, I don’t need to make investments.

I have already got publicity to the sector by means of my shareholding in Barclays. Having two UK banks in my portfolio can be a little bit too dangerous for me.