I’ve struggled to pick my top FTSE 100 stock for a while, between Lloyds Banking Group shares and Barclays.
But right now I’m starting to think NatWest Group (LSE: NWG) might just look better than both of them.
NatWest shares have taken a fresh dip since October and are down 28% in 12 months. That’s a bigger fall than Barclays at 19%, and Lloyds on 9%.
Big dividend
Over five years there’s less to choose between them. But the NatWest fall has pushed the forecast dividend yield up to a whopping 7.3%.
And I’ve been trying to decide whether to go for the forecast Lloyds yield of 5.6%, or Barclays’ 5.3%.
Broker forecasts show all three yields rising in the next two years, with NatWest still coming out ahead at 8.5% by 2025. So I see no obvious advantage for the other two there.
Valuation
On a price-to-earnings (P/E) valuation, we’re looking at values of around five for both NatWest and Barclays, with Lloyds a bit richer on a heady six.
There’s nothing I can see to count against NatWest there either.
The Nigel Farage thing hit NatWest last year. It led to the departure of chief executive Alison Rose, and I do think that was a bit of a blow.
But FTSE 100 banks have famously lost well-known bosses in the past, and have successfully moved past it. It might take time to tell if that’s happened here.
Long-term future
Do I think the events of 2023 will damage the bank’s long-term profitability? No. And it looks like City folk don’t think so either.
But I see a lesson here. When we look for shares to buy and hold for the long term, I bet most of us want to see good news, don’t we?
But a bit of bad news, if there’s no real fundamental problem, can throw up some unexpected bargains for us. The market always seems to react with a short-term view.
That can give a stock a short-term kicking… but also boost dividend yields nicely for those who nip in and buy when the price is right.
Government sale?
Another thing might be holding the NatWest share price down now. And that’s the government stake.
It still owns 38%, from when it was known as the Royal Bank of Scotland and needed that huge bailout.
When that gets sold down, it could release a lot of stock on the market, and there’s a risk that could push the price down.
Still, that might just make for another buying opportunity so private investors can get in cheap again.
What to do?
What will I do? I’ll forget short-term events and choose my shares based on valuation. If I see a good stock going cheap, that’s all that really matters.
I’d say the finance sector still faces some stiff risks in the rest of 2024, for sure.
But whether I go for NatWest, Barclays or more Lloyds next, it looks like I’ll still have a bank as my favourite FTSE 100 stock for some time yet.
The post Forget Barclays and Lloyds shares, this could be my new top FTSE 100 stock appeared first on The Motley Fool UK.
Like buying £1 for 51p
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See the full investment case
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Forget the Lloyds share price! I’ll buy this unloved bank trading at a 10-year low instead
Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
