NatWest (LSE:NWG) shares are up 5.4% since the start of the year. As such, £10,000 invested at the start of the year would now be worth £10,540. What’s more, an investor would be eligible to receive 15.5p per share in the form of dividends, with the stock going ex-dividend on 13 March, and the payment due on 28 April. However, an investor would have experienced quite a lot of volatility in recent weeks. Let’s explore that.
Trump’s trade policy
Donald Trump’s tariffs have ripped through financial markets. And while NatWest, a major UK-focused bank, is sheltered from any primary impact, the economic consequences indirectly affect British banks through several channels.
Firstly, sentiment is very important. Shares in NatWest dropped by 7%-8% following the announcement of the tariffs. This reflected broader market volatility and investor concerns about a potential global recession. The uncertainty surrounding trade wars often leads to reduced business confidence, which can dampen investment and borrowing. This is a key revenue streams for banks.
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Next, there’s credit conditions and bad debt. The tariffs have increased fears of an economic slowdown or recession, prompting expectations of lower interest rates from central banks like the Bank of England. Lower rates can compress net interest margins, a critical source of profitability for banks such as NatWest. Additionally, higher tariffs increase costs for businesses, potentially leading to greater loan defaults and higher credit risk provisions.
Moreover, while the UK economy has relatively low direct exposure to US exports (around 1.5% of GDP), the global nature of financial markets means that disruptions in the US economy can still impact UK banks. NatWest must also navigate potential currency fluctuations and inflationary pressures caused by disrupted supply chains.
Good value on paper
NatWest’s forward-looking metrics for 2025 and beyond are attractive. However, investors should remain cautious as Trump’s tariffs could lead to revisions in earnings forecasts. Assuming that the trade policy will improve is possibly foolish.
Currently, the bank’s forward price-to-earnings (P/E) ratio is 7.5 times, indicating relative undervaluation compared to peers. This figure falls to 6.6 times for 2026 and 6.3 times for 2027.
Dividend forecasts are also promising. The expected payout for 2025 of £0.28 per share, equates to a forward yield of 6.8%. And with earnings per share (EPS) projected to come in at £0.55, the dividend looks very sustainable with a payout ratio around 50%.
However, investors should keep their eyes peeled for analysts revisions. At this time, it’s very hard to comment on future earnings, but we will learn more as Trump’s trade negotiations/lack of negotiations result in a clearer tariff outlook. But one thing is clear, tariffs are very unlikely to be positive.
Personally, I’m not adding NatWest shares to my portfolio at the moment. Instead, I’m letting market volatility play out. I believe things will get worse before they get better.
