NatWest shares look cheap to me

The most recent consensus forecasts for NatWest’s earnings per share (EPS) in 2022 and 2023 are 32.1p and 38.3p per share, respectively. NatWest shares are currently trading at a forward price-to-earnings ratio (P/E) of 7.9 (2022) or 6.6 (2023), based on a share price of 252p at the time of writing. Given the FTSE 100 average forward P/E is 13.9, NatWest shares look like good value compared to the wider market.

Compared to its peers in the whole financial sector — which has an average P/E of 8.6 — NatWest again looks cheap. I think NatWest is a cheap FTSE 100 stock with above-average benefits to me as a shareholder in terms of its dividend yield and earnings growth prospects.

An attractive dividend

NatWest is forecasted to pay a dividend of 20.9p per share in 2022 and 14p per share in 2023. At 252p per share, that’s a forecasted 2022 dividend yield of 8.1% and 5.6% for 2023. NatWest is a FTSE 100 index stock with a dividend yield comfortably higher than the forecasted index average yield of 3.63%. Also, the banking services industry group’s average dividend yield is 4.39%, which NatWest again beats.

NatWest has already committed to paying an interim dividend of 3.5p per share. A special dividend of 16.8p was approved by shareholders last Thursday, along with a share consolidation. All that remains to be seen is what the final dividend looks like. It won’t have to be much to hit that 8.1% forecasted yield.

So, I have convinced myself that I have found a FTSE 100 stock that looks cheap and has an attractive dividend. But how safe are those dividends? To answer that question, I will need to look at NatWest’s earnings and growth potential.

A FTSE 100 stock for my portfolio

The markets are pricing in rates of 4% by May next year. That should be good for NatWest. In its half-year report, released at the end of July, the bank’s net interest margin — the difference between what it pays depositors and what it lends at — was up, which increased its income. Natwest’s lending activity was also solid, driven partly by strong mortgage growth.

NatWest’s dividends this year will be covered in full by earnings. Next year the forecast is for earnings to grow from 32.1p to 38.3p per share. That should cover dividends by around 2.5 times, which is excellent.

NatWest is doing well with rising rates. But inflation is driving those rate rises. People are starting to struggle with the cost of living in the UK. If NatWest’s customers stop lending and loan defaults start to rise, this will hurt the bank’s bottom line. There is a real possibility this could happen, which would probably cause the share price to slide and perhaps compromise the dividend. However, on balance, I am happy to take risks for the potential rewards with this FTSE 100 stock.

The post My top FTSE 100 stock to buy this September appeared first on The Twelfth Magpie.

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James J. McCombie owns shares in NatWest. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

NatWest shares 2022 dividends

A 5.1% yield on NatWest shares is something I would be interested in, but it gets better. A 16.8p per share special 2022 dividend, has been proposed, subject to shareholder approval at a general meeting tomorrow. That would bump the dividend yield for this year towards an exceptional 12% for 2022, assuming my calculations are correct and the following dividends are paid:

• Interim dividend 3.5p per share
• Planned special dividend 16.8p per share
• Estimated final dividend 9.6p per share

It’s too late to buy shares and be eligible for the interim dividend. But there is time to buy and be registered as a NatWest shareholder on 30 August 2022, and be eligible for the special dividend and those beyond. So, given that information, would I buy shares in NatWest now?

NatWest banked a solid start to 2022

I don’t want to focus on the special dividend too much. It’s a one-off. But a regular dividend yield of 5% or so on NatWest shares is better than the FTSE 100 average of 3.6%. The question is whether NatWest can maintain this, or perhaps improve on it?

Well, business is good at the bank. NatWest reported strong performance for the first half of 2022:

• Profit before tax up 12.8% compared to the first half of 2021
• Return on tangible equity of 13.1% compared to 11.7% in 2021
• Income growth of 16.2% compared to the first half of 2021
• Net lending growth of 2.6% in the first half of 2022
• Costs down 1.5% over the first half of 2022 relative to same period in 2021

The Bank of England (BoE) raising interest rates has helped NatWest. In fact the bank might just be the best positioned. I read in Shares magazine that research by Numis, a stockbroker, indicated that each 0.25% rise in the BoE’s base rate raises NatWest’s net interest income by 5.5%.

Is it a good time for me to buy NatWest shares?

So NatWest does better with rising rates, and rates are anticipated to rise. But there is of course the issue of whether the inflationary environment driving the rate rises will start to hurt NatWest via loan defaults or arrears. Will NatWest see credit and loan applications dry up, or be forced to curtail lending itself and hurt its income? I don’t know, and neither does the bank, for sure. But, NatWest is making provisions and is well-capitalised — enough to return substantial amounts to shareholders and leave its capital adequacy ratios well above minimums.

Beyond the immediate concerns there is growing competition from challenger banks in the digital space, but NatWest is responding. Overall, I would buy NatWest shares ahead of the deadline for the special dividend payment.

The post Should I buy NatWest shares for their dividends now? appeared first on The Twelfth Magpie.

More reading

• How much would you need invested for a second income that covers council tax?
• FTSE 100 banks retreat as investors react to political unrest. What lies ahead?
• Here’s how to invest £18,182 in an ISA for a 5.5% dividend yield
• Everybody is talking about Space X but I’m more excited by the NatWest share price
• How much do you need in a SIPP to replace the average £39,039 UK salary?

James J. McCombie owns shares in NatWest. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

The usual approach is to compare firms’ new numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions. All of them have financial years that end in December.

Rio Tinto (H1 Earnings)

Rio Tinto (LSE: RIO) is an Anglo-Australian multinational company. It’s the world’s second-largest metals and mining corporation. The FTSE 100 firm’s main export is iron ore. Rio is set to reveal its H1 numbers for its six months performance ending June on 27 July.

Its earnings preview seems to indicate a slowdown in both its top and bottom lines. This is most likely due to the perpetual lockdowns in China that have been limiting construction activity. China is the group’s biggest customer, hence the gloomy forecasts. That being said, a sudden change in health policy in China could see Rio edge closer to its FY21 figures and could spell a healthy jump in its stock.

Barclays (Q2 Trading Update)

Barclays (LSE: BARC) is one of the UK’s biggest banks. It operates in many countries across the globe, and also operates an investment banking division. The bank is expected to disclose its Q2 figures for its three-month performance ending June on 28 July.

Analysts covering Barclays are expecting the bank to improve on its total income marginally this half, on a year-on-year basis. However, its most recent earnings per share estimate has been downgraded from 7.6p in the last week. The increase to its top line is most likely due to the effects of higher interest rates. Nonetheless, a decrease in investment banking activity from the current bear market is going to cause its bottom line to suffer. But if the dual-listed stock surprises investors with better than expected figures, a rally could be a possibility.

NatWest (H1 Earnings)

NatWest (LSE: NWG) is another UK bank reporting results this week. The group operates a wide variety of banking brands, offering personal and business banking, private banking, insurance, and corporate finance. It’s scheduled to unveil its H1 earnings for its six months performance ending June on 29 July.

Just as is the case with its sector peer, analysts are expecting the same trend. Alongside that, investors in its shares and the wider stock market will be paying attention to its remediation figure and number of late-stage loans to determine whether the UK is heading for a recession. The former is essentially the amount of money allocated as a buffer to cover potential defaults from customers.

The post Earnings preview: Rio Tinto, Barclays, NatWest appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.