Stocks to buy for high sustained dividend income do not come much more overlooked than NatWest (LSE: NWG), in my view. Yet the market still seems half‑asleep to its income potential.
The bank is sitting on excess capital, throwing off strong cash flow, and quietly shrinking its share count through relentless buybacks. Despite this, the share price remains stuck in the bargain bin.
So what scale of opportunity are we looking at here?
What’s under the bonnet?
Sustained earnings growth is the key driver behind any firm’s dividend and share price gains. A risk to NatWest is a prolonged fall in interest rates that could squeeze its margins. Another is a deterioration in credit quality, particularly in mortgages or for small businesses.
Nevertheless, analysts forecast the bank’s earnings will increase by a yearly average of 4.4% to end-2028 at least. However, this looks an underestimate to me, given its recent run of results.
Its 1 May-released Q1 2026 results showed operating profit before tax jumping 12.2% year on year to £2.03bn. The gain reflected firmer income across both retail and commercial banking. And total income increased 9.5% to £4.358bn, supported by higher customer activity across payments, cards and day‑to‑day banking.
What about share price gains?
To work out where a share price might be headed long term, I use discounted cash flow (DCF) modelling. It estimates ‘fair value’ for the underlying business over the long run by projecting future cash flows and discounting them to the present.
The more uncertainty in those forecasts, the greater the discount rate applied. And this assumption, among others, can differ among analysts, producing different results. Using my own inputs — including an 8.4% discount rate — NatWest appears 54% undervalued at its current £5.93 price.
That places ‘fair value’ around £12.89 — more than twice today’s price.
So, if markets continue to correct mispricing, this could be an outstanding potential buying opportunity if that DCF modelling holds good.
How much dividend income exactly?
Unbeknown to many, it would seem, is that NatWest already has a dividend yield of 5.4% — way outpacing the 3.1% FTSE 100 average.
As good as this is, it is set to get a whole lot better. Analysts forecast rises to 6.1% this year, 6.8% next year, and a whopping 7.5% in 2028.
So, a £20,000 holding (the same as mine) in the firm would make £22,241 in dividends after 10 years and £168,431 after 30 years.
The returns are based on the forecast 7.5% as an average, although dividend yields can vary over time. They also factor in the payouts being reinvested into the stock to utilise the full supercharging effect of dividend compounding.
By the end of 30 years, the holding would be worth £188,431, including the original £20,000 stake. And that would be generating a yearly income of £14,132! Of course, none of this is guaranteed.
My investment view
Overall, NatWest looks to me like a rare combination of undervaluation, rising profits and powerful long‑term income potential.
If the bank continues delivering results like these, I think the shares will keep powering toward their fair value. And in the meantime, I can pocket the increasing dividend payouts.
Consequently, I will buy more of the stock very shortly.
Should you invest £5,000 in NatWest Group Plc right now?
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Simon Watkins owns shares in NatWest.
