A strong housing market
NatWest should continue to benefit from a buoyant UK property market going forward, and it looks set to receive a boost from any further interest rate hikes by the Bank of England. However, it is also possible that it could temper the market if it leads to an increase in customer defaults.
During the annual results, the bank’s chief executive, Alison Rose, admitted that the economic outlook was “uncertain”. However, she said NatWest is on track to deliver a double-digit return on tangible equity in 2023.
It also forecasts that the bank will end this year with a CET1 ratio – another measure of NatWest’s balance sheet strength – of around 14% and aims for 13-14% by 2023. The bank is busy exiting the market from the Republic of Ireland and has a strong UK-centric business, particularly in digital banking.
NatWest’s generous dividend
NatWest launched a share buyback program worth £750m in the first half, bringing the total to £3.8bn. It says it plans to return an additional £1bn each year, in 2022 and 2023, in the form of ordinary and special dividends, while also participating in government stake buyouts. Stocks are currently yielding 4.8%, but with share buybacks, that return is closer to 13%.
Bank of America analysts recently raised their price target on the shares from 335p to 360p.
Shares of NatWest have rallied since their fall last January and have risen 11% in the past year to 220.3p. However, they remain off their recent highs of 240p and look attractive, especially given the planned share buybacks.
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