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Heading into 2025, some traders could have famous the robust efficiency of NatWest Group (LSE:NWG). When together with dividends, it turned out to be the very best whole return inventory in your complete FTSE 100 for 2024.
Primarily based on momentum, some may need thought it was a good suggestion to purchase £2k price of the FTSE 100 inventory. A 12 months down the road, right here’s how it could have panned out.
Continued momentum
Over the previous 12 months, NatWest shares have rallied an extra 61%. So the £2,000 funding would presently be price £3,220. That is fairly a good-looking return, particularly when you think about it’s nearly triple that of the broader index. The transfer to place cash within the scorching development inventory firstly of the 12 months actually was rewarded.
In the midst of the 12 months, the financial institution delivered strong earnings development with a number of quarters beating expectations. The newest buying and selling replace from October confirmed earnings jumped 16% versus the identical interval final 12 months. Its CEO commented that the outperformance was “underpinned by wholesome ranges of buyer exercise”.
One other issue that has helped the share value is a repricing of expectations relating to rates of interest right here within the UK. If we rewind a 12 months, some had been anticipating rates of interest to fall sharply. But in actuality, we haven’t seen as many cuts in 2025 as deliberate, partly as a result of inflation has remained sticky. This has been excellent news for NatWest, because it means the online curiosity margin has remained very wholesome.
The outlook for 2026
For individuals who didn’t purchase the expansion inventory final 12 months, the query is whether or not it could possibly ship a 3rd straight 12 months of bumper share value positive aspects.
I anticipate extra stress to return on the web curiosity margin, given the view of additional a number of cuts within the UK. In fact, this view proved incorrect in 2025, however I feel the UK financial system is in a weaker place than final 12 months, so the Financial institution of England committee might want to take steps to assist enhance GDP.
As rates of interest fall, NatWest inventory may benefit from elevated curiosity from earnings traders. The present dividend yield of three.87% is above the index common. With the conventional dividend (excluding particular funds) having risen for 5 straight years, I feel the development might proceed. Due to this fact, the share value might rise as folks hunt round for tactics to earn the next yield on their cash.
Lastly, even with the robust rally, the price-to-earnings ratio sits at 12.30. The FTSE 100 common is eighteen.2, so at a relative degree, the inventory might nonetheless be seen as undervalued. This might assist stop it from seeing any critical crashes, as worth traders will rush in to purchase the dip.
General, shopping for NatWest shares a 12 months again would have paid off very effectively. Wanting forward, dangers have risen, however I nonetheless consider it could possibly proceed to understand, making it a inventory for traders to contemplate.
