3 reasons I’d buy NatWest shares after the strong results last week

Last week saw the release of the full-year report for NatWest Group (LSE:NWG). Although the shares dropped on Friday when it was released, I actually think the results were positive overall. When I add a solid financial year into the mix along with other reasons to be optimistic, I think NatWest shares could perform well for the rest of the year. Here’s why I’m thinking of buying the shares now.

Bouncing back from 2020

Let’s delve into the results in more detail. After losing £481m in 2020, NatWest posted a profit of £3.98bn this time. Part of the driver behind this was a large increase in net new money flowing into the bank from customers. This came in at £3bn for the year, up from £1.5bn the previous year. It also benefited from releasing £1.2bn in cash that was previously set aside for potential loan defaults from the pandemic. 

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These figures all made for good reading, and I think this positivity can give it momentum for 2022. The excess capital is being used partly to pay out a dividend, partly for a share buyback and partly to retain within the business. This will help to keep shareholders happy, yet at the same time provide ammunition for the coming year for investing back into businesses within the overall group.

NatWest shares did fall on the release. I think this is potentially due to the market having a high expectation of results already priced in. It was known that the results would be good, and so the bar to impress was already set quite high. Further, some investors might have been worried by the size of some expenses. This included a £265m fine for money laundering and also a rise in overall compensation for top executives.

Higher rates should support NatWest shares

A second reason why I think NatWest shares could do well this year is due to rising interest rates. In the latest report, the net interest margin for the bank fell by 0.07% to 2.39%. This doesn’t sound like a lot, but when we’re talking about the impact on hundreds of millions of pounds, it does add up.

Despite this fall, rising interest rates in the UK this year should allow the net interest margin to rise in 2022. This margin measures the difference between the rate paid on deposits versus the rate charged on lending money out. With the Bank of England looking to raise rates again in the spring, positive expectations of how this could help the group should help to lift NatWest shares.

Interest from dividend seekers

Finally, I think the group should be able to benefit from more interest from income investors. The results detailed how a dividend per share of 10.5p for 2021 was recorded (a combination of paid and proposed dividends). This is up from the 3p in 2020. The current dividend yield for the bank is 4.48%, which is above the FTSE 100 average by over 1%.

Given the positive outlook, I think dividends could continue to flow this year. This could help to boost NatWest shares as those wanting income payouts will pile in. However, I do need to be aware that if the shares rally too much, this will depress the dividend yield and make it look unappealing.

These reasons make me keen to buy now for my portfolio.

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Jon Smith and The Motley Fool UK have 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.

This post was originally published on Motley Fool

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