ii view: NatWest - a UK banking giant and dividend play

Full-year results to 31 December 

• Total income down 0.3% to £14.7 billion
• Pre-tax profit up 0.3% to £6.2 billion
• Final dividend of 15.5p per share
• Total 2024 dividend payment up 26% from 2023 to 21.5p per share
• Capital cushion, or CET1 ratio of 13.6%, up from 13.4% a year ago 

Guidance:

• Expects income for the 2025 year ahead of between £15.2 billion and £15.7 billion

Chief executive Paul Thwaite said:

“Throughout the year, we made good progress against our strategic priorities by growing all three of our customer businesses, improving productivity and actively managing our capital. 

“We have positive momentum behind us and a clear ambition to succeed with customers as we continue to build a simpler, more integrated and technology-driven bank that is capable of even greater impact."

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ii round-up:

Major UK bank NatWest Group (LSE:NWG) serves over 19 million customers across the UK.

Employing over 60,000 people, the bank operates across the three arenas of Retail and Private Banking, as well as Commercial and Institutional banking. 

Group brands include NatWest, Royal Bank of Scotland, Ulster Bank in Northern Ireland, Coutts and Lombard.

For a round-up of these latest results announced on 14 February, please click here. 

ii view:

NatWest Group is made up of nearly 250 past and present banks that have joined together over the centuries. Today, the largely UK focused bank and constituent of the FTSE 100 index competes against rivals including Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA). Commercial and Institutional banking generated its biggest slug of income in 2024 at 54%, with the company promoting itself as the UK’s biggest bank for business. That was followed by Retail banking at 38% and Private banking the balance of 8%.  

For investors, an uncertain economic outlook continues to offer potential for bad debt provisions to be raised. Group costs adjusted for factors such as the government’s banking levy rose 1.1% year-over-year, driving the cost/income ratio up to 53.4% from 51.8% in 2023. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while the bank now lacks the geographical diversity it previously enjoyed following overseas sales made since the financial crisis. 

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To the upside, income for 2025 is forecast by management to grow, potentially improving profits. Acquisitions such as that for Metro’s mortgage loans and Sainsbury’s retail banking are aiding growth. The UK government’s share stake continues to reduce, while the balance sheet remains robust with a capital cushion, or CET1 ratio of 13.6%.  

In all, and despite ongoing risks, a forecast dividend yield of over 5% is likely to maintain the loyalty of fans of this UK focused banking giant. 

Positives  

• Investing in technology
• Attractive dividend (not guaranteed)

Negatives

• Uncertain economic outlook
• Lacks the diversity of some rivals

The average rating of stock market analysts:

Buy