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Will we take into account a 4.8% dividend to be a excessive yield lately? If it rises to six% by 2026, because the forecasts counsel, I do.
That’s even with a share worth that’s risen 95% prior to now 12 months.
I’m speaking about NatWest Group (LSE: NWG) right here, one in all this yr’s high FTSE 100 performers. The banks have performed effectively total, however NatWest is neck and neck with Barclays on the head of the pack.
Dividend outlook
However on dividend forecasts, NatWest is effectively forward of Barclays’ 3.3%, which might attain solely 3.8% on the 2026 timescale.
Metropolis analysts are nonetheless bullish on the NatWest share worth too. They’ve a median goal on it of 441p, up one other 11%.
However earlier than I get too carried away, may this upbeat imaginative and prescient be only a bit too rosy? It would, and I see one key threat for NatWest (and the opposite excessive avenue banks).
NatWest posted sturdy Q3 ends in October, with whole revenue (excluding a couple of one-offs) up 5.1% to £3,772m. It was fuelled partially by a wholesome web curiosity margin (NIM) of two.18%, up 8 foundation factors.
Financial institution of England
However that’s in a time when Financial institution of England charges are nonetheless excessive. And when these fall, we’ll see stress on the banks’ NIM figures.
Nonetheless, NatWest appears to be producing loads of money handy again to shareholders. On the interim stage, it lifted the first-half dividend by 9% over final yr’s.
Full-year forecasts suggests an 11% rise, so it appears like we’re on monitor.
With NatWest’s purpose to “pay ordinary dividends of around 40% of attributable profit and maintain capacity to participate in directed buybacks from the UK government,” I believe the dividend future appears promising.
Authorities stake
That bit in regards to the authorities is one other factor to be cautious of. We used to know NatWest as Royal Financial institution of Scotland, the one which solely survived thanks to an enormous state bailout. And the federal government stake continues to be a little bit of a drag. Nevertheless it’s virtually halved this yr, and I hope it would carry on decreasing.
I haven’t talked about my favorite first-look valuation measure but, the price-to-earnings ratio (P/E). It’s a comparatively crude indicator. However traditionally, I believe it really works effectively for the banking sector.
Different issues being equal, decrease is best, and the FTSE 100 has posted a long-term common of round 15. NatWest forecasts put it at 8.2 this yr, dropping to simply 7 by 2026.
Oh, and I see a trailing P/E for final yr of simply 4.6. Wow, was {that a} huge Purchase sign that I missed, or what?
On the record
Heading into the New Yr, I need to high up my financial institution sector holdings. My long-term favorite, Lloyds Banking Group, hasn’t performed so effectively this yr. Nevertheless it’s the UK’s largest mortgage lender and is uncovered to important rate of interest threat.
Perhaps NatWest is the most suitable choice for me now. Except the share worth climbs an excessive amount of additional earlier than I’m prepared to purchase, it may be the following one for me.
