Prediction: in 12 months the red-hot NatWest share price could turn £10,000 into…

The NatWest (LSE: NWG) share price has been on fire. It’s up more than 60% in the last 12 months and has rocketed 300% over five years.

As well as growth, the FTSE 100 bank’s starting to pay investors generous dividends.

Strong income growth

In 2024, the bank paid a full-year dividend of 21.5p. That was a jump of 26.5% on the 17p paid in 2023. Over the last five years, NatWest has grown its dividend payout at an average compound rate of 60% a year. That’s staggering growth, albeit from a low base of 3p in 2020.

Now analysts reckon the payout could climb to 29p in 2025, then to 32p in 2026 and 36p in 2027. Based on today’s 507p share price, that would mark forecast yields of 5.7%, 6.3% and 7.1%.

Profits beat forecasts

NatWest’s full-year results, published on 14 February, showed pre-tax profit of £6.2bn, slightly above the £6.1bn consensus. Return on tangible equity was a healthy 17.5%.

The first-quarter update, released on 2 May, was even more eye-catching. Operating profit hit £1.8bn, up 36% year-on-year and well above the £1.6bn forecast. Net interest margins edged higher and mortgage lending surged. The outlook also improved, with management now guiding towards the top end of 2025 targets.

The government sold its final stake in the bank on 30 May, down from 84% after the financial crisis bailout. That’s another positive, as the constant drip of stock sales had been a drag on sentiment.

Reasons to be careful

Of course, nothing goes up in a straight line. With the shares already up 60% in a year, some investors may fear it’s all happening too quickly. Analysts now expect a 12-month price target of 571.8p, which would mark a relatively modest gain of around 13%. Combined with that growing income stream, the total return could nudge 20%.

That would turn a £10,000 investment into £12,000, if it happened. Remember, these numbers are just forecasts, not guarantees.

I wouldn’t suggest any investor buy any stock with just one year in mind, but a minimum five years and ideally much longer, to give time for the rewards to roll up.

There are risks to consider too. The UK economy’s still fragile, and inflation and interest rates remain high. That could start to bite if defaults rise. Impairment charges came in at £189m in Q1. Not disastrous, but worth watching. A weaker consumer outlook or sluggish mortgage market could also put the brakes on.

Despite the rally, the valuation doesn’t look excessive. The price-to-earnings ratio stands at a modest 9.72, with a price-to-book ratio of 0.98. The P/B ratio doesn’t scream cheap, but given NatWest’s recent momentum and improved outlook, it’s hardly expensive either.

Of the 19 analysts covering the stock, 12 rate it a Strong Buy and two more say Buy. None are calling Sell.

I think investors might consider buying, despite the strong run. But for those willing to take the long view, I think there’s a good chance of further rewards ahead.

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Harvey Jones 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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