3. NatWest Group plc (NYSE:NWG)
Dividend Yield as of December 28: 4.43%
NatWest Group plc (NYSE:NWG) is a retail and commercial bank, headquartered in London. The company offers mortgages, loans, credit cards, and related services. The stock has surged by nearly 84% in the past 12 months, outperforming the FTSE 100. Much of the company’s success over the past year can be attributed to the unusually high interest rates, enabling the bank to secure exceptionally strong returns on its loans. In 2024, the bank consistently maintained its net interest margin—the gap between interest paid and interest earned—above 2%.
In the third quarter of 2024, NatWest Group plc (NYSE:NWG) reported an attributable 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, with growth across all three business sectors, primarily driven by increased savings. For 2024, the company expects to maintain a return on tangible equity above 15% and anticipates income, excluding notable items, to reach approximately £14.4 billion. In addition, total income, excluding notable items, amounted to £3.77 billion, marking an increase of £182 million, or 5.1%, compared to Q2 2024. This growth was primarily driven by lending and deposit expansion, along with margin improvement.
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) currently offers a semi-annual dividend of $0.1543 per share and has a dividend yield of 4.43%, as of December 28. For FY24, the company expects to pay ordinary dividends amounting to approximately 40% of its attributable profit.
The number of hedge funds tracked by Insider Monkey owning stakes in NatWest Group plc (NYSE:NWG) grew to 15 in Q3 2024, from 11 in the previous quarter. These stakes are worth over $33.8 million in total.
