NatWest Group PLC (LSE:NWG) is expected to be flush with cash this year, with results released on Friday likely to put more meat on the bones of expectations of strong dividends for the taxpayer-owned bank.
Cash set aside for impairments from COVID-19 loans that went largely unused, along with an expected boost to its net interest margin as the Bank of England targets further rate rises this year, should combine to boost the company’s endowments.
Dividend in sight?
Dividends are accordingly likely to be a key feature of that enhanced liquidity, with UBS expecting dividends per share (DPS) of 7p and a share buyback of £1.2bn to be announced with the results.
But separate from the rest of the banking sector, there will be a vague feeling of money being left on the table, given the government’s majority ownership of the bank.
And while large proceeds of NatWest’s cash windfall will continue to filter to the Treasury, there are signs over the horizon that NatWest should become a more attractive buy for investors.
What's at stake?
The UK state's stake in the bank was built as part of its bailout during the global financial crisis, back under its RBS moniker, peaking at a 71% shareholding in December 2016.
That perceived lack of value has historically put downward pressure on the NatWest share price, which is currently placed at late 2019 levels after a slow recovery from the pandemic-induced crash.
But the UK Government’s ownership of NatWest currently sits at 52% for the first time since it took a majority stake in the company nearly 14 years ago, with the expectation that it will drop below 50% this year through a progressive selling of shares into the market.
What's more, NatWest is the most sensitive to Bank of England rate hikes among the FTSE 100 lenders, according to analysts at Deutsche Bank, while those at Berenberg said it looks to be the “greatest near-term beneficiary” of rising rates.
Last year the board promised to pay out to £1bn a year in ordinary and special dividends over the next three years, up from a previous £800mln commitment, so investors can expect a decent windfall in the near term, regardless of how quickly the Treasury sells off its remaining shares.