8. NatWest Group plc (NYSE:NWG)
Number of Hedge Fund Holders: 15
NatWest Group plc (NYSE:NWG) ranks eighth on our list of the best FTSE dividend stocks to buy now. The retail and commercial banking company that offers mortgages, loans, credit cards, and related services. The stock is delivering strong returns, surging by over 112% in the past 12 months. A key factor in the company’s success over the past year has been the unusually high interest rates, which enabled the bank to generate exceptionally strong returns on its loans. Throughout 2024, the bank consistently maintained its net interest margin—the gap between the interest it paid and earned—above 2%.
In the third quarter of 2024, NatWest Group plc (NYSE:NWG) reported a profit of £1.17 billion and a return on tangible equity (RoTE) of 18.3%. Customer deposits, excluding central items, rose by £2.2 billion, driven by higher savings across all three business sectors. The company anticipates maintaining a RoTE above 15% for 2024 and expects income, excluding notable items, to total around £14.4 billion. In addition, total income, excluding notable items, grew by £182 million (5.1%) from Q2 2024, mainly due to increased lending, deposits, and improved margins.
L1 Capital also highlighted this in its Q3 2024 investor letter. Here is what the firm has to say:
“NatWest Group plc (NYSE:NWG): NatWest is the largest commercial lender in the U.K. (20% share) and the second largest U.K. retail bank with ~13% of all mortgages. We see NatWest as best positioned in the U.K. Banking sector to benefit from improving margin trends, with topline growth supported by a rebound in U.K. housing and economic activity. Moreover, with significant buybacks owing to a strong capital position, NatWest should see ~8% EPS growth p.a. over the next three years vs. ~2% expected growth for CBA. Although CBA enjoys a more dominant market position in Australia vs. NatWest in the U.K., it appears overvalued in our view as it trades on ~24x FY25 P/E (historical highs) compared to only ~7x for NatWest.
NatWest (Long +10%) shares rallied on strong quarterly results including earnings ~28% ahead of consensus expectations and upgraded guidance driven by higher-than-expected revenues with net interest margin expanding 5bps. NatWest is the U.K.’s second largest retail bank with ~13% mortgage share and the U.K.’s largest commercial lender with ~20% share. In our view, NatWest leads the U.K. Banking sector with improving underlying operating trends, a superior mortgage margin trajectory and increasing interest rate hedge income. Importantly, management expects ongoing net interest margin expansion despite the impact of BoE rate cuts. We believe the company remains significantly undervalued, trading on an FY25 P/E multiple of only ~7x and a price to tangible book value ratio (P/TBV) of only ~1x. This is despite generating a 15% return on tangible equity and ~8% p.a. earnings growth over the next three years based on consensus expectations. We find these metrics and attributes very compelling, especially when compared to Australian banks.”
NatWest Group plc (NYSE:NWG) is a reliable dividend payer, with expectations to distribute ordinary dividends equaling around 40% of its attributable profit for FY24. At present, the company provides a semi-annual dividend of $0.1543 per share for a dividend yield of 3.96%, as of February 10.
