The margin for NatWest, one of the leading banks in the UK, increased to 3.27% in the first quarter of this year, a rise of seven basis points compared to the previous quarter. With a dividend yield of 5.7%, NatWest is known for its consistent and generous shareholder payouts.
What’s the value of NatWest shares?
Currently, NatWest shares are trading at a relatively low ratio of six times earnings for 2023, similar to its competitor, Lloyds Banking Group, both offering dividend yields of over 5%. However, experts caution that there are still risks to consider for DIY investors.
Michael Clayton, an industry expert, acknowledges that the retail banking industry is facing challenges from fintech rivals, especially in areas such as foreign exchange and payments. He points out that banks need to constantly fight to maintain their market share.
While bank shares have recently fallen out of favor, Michael Hewson from CMC Markets highlights that they have recovered well from the impact of the pandemic. Despite the news surrounding Dame Alison, NatWest remains in a strong position.
Comparing NatWest and Lloyds, Clayton notes that Lloyds has similar improving profit margins. However, he highlights that Barclays, with its investment banking division, has a greater global exposure compared to NatWest and Lloyds. NatWest and Lloyds are more vulnerable to concerns about the health of the British consumer and the housing market.
An important risk factor for banks like NatWest is their bad debt provisions. Historically low interest rates have kept bad debt charges in check, but experts anticipate that these charges may increase in the future. If bad debt charges return to historical levels, NatWest shares could be valued at 10 times earnings instead of the current six times earnings, warns Clayton.
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