£10,000 invested in NatWest shares 2 years ago is now worth…

Two years ago, NatWest (LSE:NWG) shares were changing hands for just £2.19. As I write, they trade near £5.63. That represents a gain of 157%, and when dividends are included, a £10,000 investment made in August 2023 would now be worth around £25,300.

It’s been an extraordinary run for the FTSE 100 bank, outperforming the wider market and most of its banking peers. So what’s happened and will the good run continue?

A plethora of catalysts

This sharp re-rating has been supported by an improvement in financial performance as well as other factors including the government’s exit from its stake in the bank — a process completed in 2025.

Rising interest rates provided a boost to income, allowing banks to widen their net interest margins — the difference between what they earn on loans and pay on deposits. As a largely domestically-focused lender with a strong deposit base, NatWest was a major beneficiary.

In 2024, the bank posted a return on tangible equity of 17.5% and pre-tax profits of £6.2bn, comfortably ahead of analyst forecasts. Net interest income has remained elevated as interest rates have fallen slowly.

This is particularly important as there’s a hedging benefit — replacing legacy low-yielding assets with higher-yielding ones continues to support margins, even as benchmark rates drift lower. The bank’s structural hedge has effectively locked in income over a multi-year period, allowing NatWest to smooth earnings despite a changing rate environment.

Shareholder returns

That earnings strength has flowed through to shareholder returns. In 2024 alone, NatWest returned over £4bn to shareholders via a combination of buybacks and dividends. The full-year payout rose 26% to 21.5p.

Dividends are forecasted to increase further, to 29.6p in 2025, 33p in 2026, and 36.6p in 2027. Based on the current share price, those equate to forward yields of 5.3%, 5.9%, and 6.5% respectively. That’s among the highest in the FTSE 100, and still elevated versus its peer group.

Despite the share price appreciation, NatWest’s valuation still appears reasonable. The forward price-to-earnings ratio for 2025 sits at 9.4. Looking further ahead, this falls to 8.5 in 2026 and 8.1 in 2027. The price-to-book (P/B) ratio of 1.2 is a little ahead of peers.

And as mentioned above, the government’s exit represents a significant change. Not only did it result in the share count falling considerably — down from around 9.6m in 2022 to 8.1m today — it restored autonomy and marks a return to private ownership.

The bottom line

Of course, risks remain. The UK economy’s facing a period of slow growth, and competition in retail banking remains fierce. Threats to the global economy like US trade policy could also have an impact.

However, NatWest’s recovery has been both real and substantial, and few would argue this FTSE bank hasn’t earned its re-rating. Personally, I’m expecting continued appreciation but at a much lower pace.

I’d suggest that most UK banks are largely trading in line with each other although NatWest’s P/B ratio may suggest that it’s a little dearer. It’s currently trading just 3% below its average target price. And with all the above in mind, I believe it’s worth considering but suggest better value could be found elsewhere.

The post £10,000 invested in NatWest shares 2 years ago is now worth… appeared first on The Motley Fool UK.

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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.

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