An income stock I’ve had my eye on for some time is Natwest (LSE: NWG). Let’s say I had £1K to invest right now. With that, I could buy 411 shares at a price of £2.43 per share.
Is there an opportunity to buy Natwest shares with a view to helping me boost my wealth?
Let’s dive in and take a look.
Stellar results and future prospects
Natwest has had an excellent start to 2024, in my opinion. This is largely due to better-than-expected results announced last month.
The headline from the results was a pre-tax operating profit of £6.2bn. For context, this is the bank’s best performance since before the pandemic!
I reckon a big part of this has been due to higher interest rates. Boosted rates increase net interest margins (NIMs). It is worth mentioning that higher rates can be a double-edged sword. Better performance and more cash on its balance sheet are one side of the coin. The other is the chance of defaults on loans, which could hurt its bottom line.
Murmurings of the economy turning a corner can’t be ignored, especially as the business has posted excellent results during times of high volatility and a recession.
If inflation levels come down, and consumer spending and confidence increases, continued positive performance could be on the way for one of the UK’s biggest banks. Interest rates coming down present their own challenge, but more on that later.
Despite the stellar performance announced, economic volatility has meant the shares aren’t exactly flying. Over a 12-month period, they’re down 5% from 257p at this time last year, to current levels of 244p.
Risks to note
One of my biggest worries is that the peak of interest rates and Natwest’s best performance in years coming hand in hand present a conundrum. If interest rates fall, will Natwest’s profitability levels drop too? I’ll keep an eye on that. However, it is worth mentioning that the business is expecting to bring in £11bn in net income over the next three years. However, I do understand that forecasts don’t always come to fruition.
The other skeleton in the closet is the Nigel Farage account closure scandal which seems to have rumbled on for a long time. It’s brought Natwest unwanted media scrutiny and hurt investor sentiment. Such issues are unnecessary distractions, especially during times of economic volatility when efforts need to be focused elsewhere.
My verdict
A dividend yield of 7% makes the investment case strong. Furthermore, the shares look decent value for money on a price-to-book ratio of 0.6. It is worth mentioning that dividends are never guaranteed.
Plus, Natwest’s position in the UK’s banking ecosystem as one of the so-called ‘big four’ can’t be ignored.
As a long-term investor, I’d be willing to buy some shares when I next can for returns, and hopefully some growth.
However, I would need to be ready for the roller-coaster ride that is the UK economy and banking sector, with short-term shocks ahead. Hopefully, any dividends I’d bag along the way would help ease the pain.
