When I look at the Lloyds (LSE:LLOY) share price I can see why it constantly tops the list of the UK’s most-traded shares.
Shareholders have been hurt time and again by the black horse bank.
Lloyds shares are down more than 20% in the last 12 months and they’ve never really recovered from the 2008 stock market crash.
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Dividends have softened the blow somewhat. Analysts think Lloyds will pay 2.76p per share dividends this year and 3.24p per share in 2025.
At a share price around 40p, that means hefty yields between 6.9% and 8.1%. But could rival NatWest (LSE:NWG) be a better buy?
Go west
As of 7 February 2024, I could buy NatWest shares for around 220p. If I’d picked the perfect recent low, in September 2020, I could have doubled my money.
But it’s basically impossible for me to time the market like this.
However, when NatWest puts out its full-year results in February, I’m expecting a slight improvement. I see profits jumping from £3.5bn to £4bn.
The opportunity
The government bailed out NatWest amid the financial crisis in 2008 with £45.5bn of taxpayer’s money.
Chancellor Jeremy Hunt now wants to sell the government’s 39% stake in the bank. And we heard in early February that Hunt has drafted in M&C Saatchi to help make this happen.
So I’d expect to see a fairly major advertising campaign urging the public to buy NatWest shares. I’m expecting to see this share sale as early as June 2024.
But would I put my own money down on this opportunity?
Big buybacks
In an effort to push up share prices, UK banks are embarking on a campaign of share buybacks.
Lloyds and HSBC are tipped “to lead the sector”. Lloyds in particular is set to spend £2bn more on buying back its own shares. This could prop up the ailing share price.
But I found one statistic more interesting from recent reporting. NatWest isn’t on the list of those banks planning to reduce its outstanding shares.
But its valuation is the most compelling of all, analysts say.
Today the shares are priced at five times its 2025 forecast earnings. That compares favourably with 6.2 times forecast earnings, which is the sector average in Europe.
And share buybacks — like those ongoing at Lloyds — seem a short-term solution. They aren’t really additive to long-term growth.
Diving deeper
2024 may be another tough year for UK-listed banks. Analysts expect a key rate of profitability called ‘net interest margin’ to be weak in this financial quarter.
This is the difference between the interest banks charge on lending, and the amount they have to pay out on borrowing.
Inflation remains a stubborn problem. This may stop the Bank of England from cutting interest rates. And a weaker outlook for future growth means one thing. Investors may sell out of FTSE 100 stocks to seek better returns elsewhere.
Dividends better?
However, I can see NatWest plans to hike its dividend from 13.8p to 16.9p per share this year. That would give it a 7.8% yield. That’s even better than what’s on offer at Lloyds.
I will be watching NatWest’s earnings report on 16 February 2024. If it’s more profitable than its rival, this could be a great buy for me.
