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.
The post £1K bags me 411 shares in this 7% yielding income stock appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
Could NatWest shares be 2024’s number one buy for passive income?
6.5%+ yields! Are these cheap, high-dividend FTSE 100 dividend stocks too good to miss?
Why dividend yields are more important than ever
Last chance to buy NatWest shares for a 4.5% dividend in April
If I invest £10,000 in NatWest shares, how much passive income would I receive?
Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
