3. NatWest Group plc (NYSE:NWG)
Dividend Yield as of December 29: 4.37%
NatWest Group plc (NYSE:NWG) is a London-based retail and commercial bank that offers mortgages, loans, credit cards, and related services. In the third quarter of 2024, the company reported an attributable profit of £1.17 billion and a return on tangible equity (RoTE) of 18.3%. Customer deposits, excluding central items, grew by £2.2 billion, driven by increased savings across all three business sectors. The company expects to maintain a RoTE above 15% for 2024 and projects income, excluding notable items, to reach around £14.4 billion. In addition, total income, excluding notable items, increased by £182 million (5.1%) compared to Q2 2024, primarily due to growth in lending, deposits, and 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) is delivering solid returns in 2024, surging by nearly 83% in the past 12 months. A significant portion of the company’s success in the past year is due to the unusually high interest rates, which allowed the bank to achieve exceptionally strong returns on its loans. In 2024, the bank consistently kept its net interest margin—the difference between the interest it paid and earned—above 2%.
NatWest Group plc (NYSE:NWG) is a solid dividend payer as the company expects to pay ordinary dividends amounting to approximately 40% of its attributable profit in FY24. Currently, it pays a semi-annual dividend of $0.1543 per share for a dividend yield of 4.37%, as of December 29.
As of the close of Q3 2024, 15 hedge funds tracked by Insider Monkey reported having stakes in NatWest Group plc (NYSE:NWG), up from 11 in the previous quarter. These stakes are collectively valued at over $33.8 million.
