Has the NatWest share price peaked?
The NatWest (LSE:NWG) share price has been one of the FTSE 100’s standout success stories over the past year, surging 62% as solid earnings, a declining government stake, and a supportive banking environment have all fuelled investor optimism.
But with the shares now trading near multi-year highs, the key question is whether NatWest’s share price has peaked, or if there’s more to come?
Valuation’s key
Looking at forward valuation, NatWest remains attractively priced by historical and sector standards. The bank trades on a forward price-to-earnings (P/E) ratio of about 7.5 times for 2025, falling to 6.6 times in 2026 and 6.3 times in 2027.
These multiples are well below the long-term average for UK banks and suggest that, despite the recent rally, the market may still be underestimating NatWest’s underlying earnings power. Still, these shares were even cheaper last year.
The price-to-book ratio’s projected at 1.12 times in 2025, moderating to 0.97 by 2027. This is broadly in line with peers. We can also see that return on tangible equity (RoTE) is expected to remain above 15% through 2027. This is a sign of strong profitability and capital discipline.
The dividend yield forecast’s also attractive. NatWest’s dividend yield targets 5.7% for 2025, rising to 6.3% in 2026 and 7% in 2027. What’s more, dividend cover ratios consistently sit above 1.9 times during the period, indicating that payouts are well-supported by earnings.
This combination of high yield and robust coverage isn’t rare among major UK banks. However, I’m sure it’ll continue to attract income-focused investors as long as the payout policy remains intact.
Broader considerations
The broader economic backdrop’s another important consideration. UK economic growth’s been modest but steady, and banks like NatWest typically mirror the health of the domestic economy.
The outlook for interest rates is important and nuanced. Higher rates have boosted net interest margins in recent quarters and any sharp cuts could pressure earnings. However, hedging strategies should be pushing the positive impact of higher rates well into the future as banks replace lower-yielding debt with higher yields.
Despite these positives, risks remain. The recent share price rally has left NatWest more exposed to any disappointment in earnings or a deterioration in the UK economic outlook. Credit quality’s another area to watch, especially if consumer or business defaults rise. This could be worth watching closely if President Trump’s trade policies cause a pullback in global economic growth.
The bottom line
In short, NatWest’s shares are no longer the bargain they were a year ago. However, the forward valuation remains undemanding, especially when set against strong dividend prospects and resilient earnings forecasts.
The risk is that much of the good news is now priced in, but with P/E ratios still below the sector average and yields approaching 7% by 2027, it’s hard to argue the shares have definitively peaked.
Personally, I’m not buying NatWest shares because I’m already heavily exposed to the sector. But I appreciate its worth considering the mix of value and income.
The post Has the NatWest share price peaked? appeared first on The Motley Fool UK.
Investing in AI: 3 Stocks with Huge Potential!
🤖 Are you fascinated by the potential of AI? 🤖
Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.
If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…
Then you won’t want to miss this special report inside Motley Fool Share Advisor – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And today, we’re giving you exclusive access to ONE of these top AI stock picks, absolutely free!
More reading
- 3 FTSE 100 stocks with low P/E ratios to consider buying right now
- Does the Arbuthnot or the NatWest share price offer the best value?
- £10,000 invested in these 5 FTSE 100 shares in June 2020 would now be worth…
- Since January, the sizzling NatWest share price has turned £10k into…
- Red-hot NatWest shares are up 306% in 5 years – and its dividend is up 60%!
James Fox 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.
