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Earlier today (13 February), NatWest Group (LSE:NWG) released its 2025 results and I reckon those holding the bank’s shares primarily for its dividend are likely to be pleased.
That’s because the FTSE 100’s fourth-largest bank announced that its total payout for the year will be 32.5p. That’s a whopping 51% increase on 2024. It might be Friday 13th, but I don’t think shareholders will be cursing their luck today.
It keeps getting better…
And a closer look at the results reveals more good news.
Compared to 2024, total income was 13.2% higher and profit after tax was up 21.3%. Much of this was driven by an improvement in its net interest margin from 2.13% to 2.34%. But the bank was also able to reduce its cost-to-income ratio by 4.8 percentage points.
Earnings per share were 68p meaning the bank’s shares now trade on 8.6 times historic earnings.
However, despite its income and return on tangible equity (RoTE) beating analysts’ forecasts, there was a relatively muted response from investors. After 45 minutes of trading, the bank’s shares were down approximately 0.5%.
I wonder if they were disappointed by the cautious outlook? The bank says it’s aiming for a RoTE of “greater than 17%” in 2026. This is less than the 19.2% achieved in 2025.
Other news
The increase in the dividend comes at the end of a week when the group said it had reached agreement to buy Evelyn Partners, the UK wealth manager, for an enterprise value of £2.7bn. It increases NatWest’s assets under management from £59bn to £128bn. And it estimates that fee income will rise by around 20%.
To help pay for the deal, the bank will suspend its share buyback programme after the current £750m tranche has been spent. This also disappointed investors and makes today’s dividend announcement even more significant.
And the rise in its payout means the bank’s yield is now an impressive 5.5%. Since the pandemic, NatWest’s been steadily increasing its shareholder returns. But up until today’s announcement, the impact of this had been wiped out by a 253% increase in its share price.
| Financial year | Share price (pence) | Dividend (pence) | Yield (%) |
|---|---|---|---|
| 2020 | 168.46 | 3.00 | 1.8 |
| 2021 | 226.79 | 10.50 | 4.6 |
| 2022 | 265.20 | 13.50 | 5.1 |
| 2023 | 219.40 | 17.00 | 7.8 |
| 2024 | 402.10 | 21.50 | 5.4 |
| 2025 | 651.80 | 32.50 | 5.0 |
The suspension of buybacks has been interpreted as a sign that its directors believe the share price is getting expensive. But of the FTSE 100’s five banks, it still has the lowest price-to-earnings ratio and it ranks third when it comes to comparing its market cap with its book value. On this basis, I don’t think the stock’s too badly priced.
My view
But that doesn’t mean I want to buy.
Although I believe NatWest has much going for it – including its above-average dividend – with 95% of its revenue in 2025 coming from the UK, it’s heavily reliant on a fragile domestic economy. This makes me wary. And although a 5.5% yield is very attractive, it’s not enough to tempt me. The forecasts are very optimistic but its margin may come under pressure if, as expected, interest rates continue to fall. On balance, I think there are better opportunities to consider elsewhere.
