We recently compiled a list of the 10 Best Bank Stocks With High Dividends. In this article, we are going to take a look at where NatWest Group plc (NYSE:NWG) stands against the other bank stocks.
In 2023, the US banking industry took a major hit, as Silicon Valley Bank collapsed, followed by the downfall of two other major banks. It was the biggest shake-up the industry had seen since the 2008 financial crisis. Despite the US banking crisis, the past two years have been the best for banks since before the Great Recession. Shocking, right?
Banking Sector Performance 2023
According to McKinsey, banks made $7 trillion in revenue and $1.1 trillion in net income globally during 2023, with a return on tangible equity of 11.7%. They have also strengthened their capital and liquidity, with capital levels at 12.8% and liquidity at 77.2%, both improving from 2022. In fact, banks earned more profit than any other sector worldwide last year. Right now, 14% of banks are making up 80% of the industry’s economic profit, which is a big jump from 11% in 2013. This is nearly five times higher than most other industries, where a few big players usually dominate the performance.
In 2023, global dividends surged to a record $1.66 trillion, marking a 5.0% increase on an underlying basis, according to the Janus Henderson Global Dividend Index. The banking sector played a key role in this growth, delivering record payouts and accounting for half of the global increase in dividends. Higher interest rates allowed many banks to expand their margins, with emerging market banks contributing significantly to this increase – though banks in China didn’t join in the dividend boom.
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Banking Sector in 2024
The banking sector is anticipated to maintain its strong performance this year, with analysts offering an optimistic outlook. On December 4, 2024, Moody’s upgraded the global banking sector from negative to stable. The credit rating giant is positive because G-20 countries are easing up on interest rates and making some monetary adjustments, which should help with the asset quality and liquidity of banks. The economy seems to be stabilizing, and that should help banks recover, especially in terms of deposits. Of course, there are some risks like geopolitical tensions, trade issues, and possible shifts in the US policies under the new president could create uncertainties that might affect the global economy and the banking sector. So, while things are looking better, there is still some uncertainty on the horizon.
Our Methodology
For this article, we used the Finviz stock screener to filter out bank stocks with dividend yields exceeding 3%. We focused on picking stocks with a consistent record of paying dividends, offering dividend growth, and being financially stable to steer clear of yield traps. The list below is ranked in the ascending order of dividend yields, as of December 6. We have also mentioned the number of hedge fund holders in each firm, which was sourced from Insider Monkey’s Q3 2024 database.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here)
A person using a laptop to access a bank’s online banking system.
NatWest Group plc (NYSE:NWG)
Dividend Yield as of December 6: 4.20%
Number of Hedge Fund Holders: 15
NatWest Group plc (NYSE:NWG) specializes in banking and financial services in the UK and globally, operating through Retail Banking, Private Banking, and Commercial & Institutional segments. NatWest Group had a strong first half of 2024, and its disciplined growth strategy was boosted by the acquisition of a mortgage portfolio from Metro Bank and the acquisition of retail banking assets and liabilities from Sainsbury’s. The bank plans to pay ordinary dividends of about 40% of attributable profit.
The bank’s stock has grown a whopping 84.55% year-to-date as of December 3, 2024. L1 Long Short Fund highlighted NatWest as the largest commercial lender in the UK and the second-largest retail bank. The fund believes NatWest is well-positioned to benefit from improving margins, housing, and economic activity, projecting 8% annual EPS growth over the next three years. Here is what the firm said about the company in its Q3 2024 investor letter:
“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)’s CEO, Paul Thwaite, announced on December 3 that the bank is about to make a quick comeback to private ownership, with the UK government likely selling off its last shares by mid-2025. Thwaite called it a major moment for both the bank’s team and the whole banking world, signaling the end of the 2008 financial crisis fallout. Back in the day, the UK government bailed out NatWest (then called Royal Bank of Scotland) with nearly £46 billion, taking control of around 84% of the bank. However, over the past year, the government’s stake has dropped from 38% in December 2023 to just under 11% today, thanks to a fast-paced sell-off and share buy-backs.
Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital held the biggest stake in NatWest Group plc (NYSE:NWG) at the end of the third quarter, comprising 1.5 million shares worth nearly $20 million. Among the hedge funds tracked by Insider Monkey, a total of 15 funds reported owning stakes in NWG at the conclusion of the third quarter.
Overall NWG ranks 5th on our list of the best bank stocks with high dividends. While we acknowledge the potential of NWG as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NWG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
