FTSE 100 banking giant Natwest (LSE: NWG) looks like an attractive dividend stock to help me build wealth.
I’d love to buy some shares as soon as I have some investable cash.
Let me detail my investment case.
Positive momentum
I hardly think that Natwest needs much of a detailed introduction. However, it’s worth noting that there’s more to the business than its retail arm. Other lines of business include RBS, Ulster Bank, and Coutts. This range of brands offers it a great presence, and a vast customer base.
Natwest shares have been on a good run in the past 12 months, despite economic volatility. They’re up 42% in this time period, trading for 233p at this time last year, to current levels of 331p at present.
Pros and cons of buying shares
It’s hard to ignore Natwest’s diverse offering, as noted through its multiple brands. Its vast presence and pivotal system in the UK’s banking ecosystem also stand out to me as major positives. These aspects have helped it grow into one of the largest banks in the UK with a solid track record behind it. As demand for financial services products increases in line with a growing population, I can see Natwest growing earnings and returns.
Next, the shares still look excellent value for money to me on a price-to-earnings ratio of close to seven. Furthermore, a price-to-earnings growth (PEG) reading of below one also indicates value.
Moving on, the shares offer an enticing dividend yield of 5%. For context, the FTSE 100 average is closer to 3.5%. However, it’s worth mentioning that dividends are never guaranteed.
Finally, looking at recent events, interest rate cuts could serve Natwest well. Although net interest margins will decrease, the opportunity for new business should offset this. For example, there could be new mortgage business if the housing market takes off. Plus, Natwest’s continued presence in the private wealth market, through its Coutts brand, could boost earnings too.
Looking at the other side of the coin, one of my biggest worries is if economic volatility turns into a recession, or worse, a crash, like in 2008. At that time, the government had to intervene and bail out Natwest. Although the government continues to sell its remaining stake, the memory of this event and outcome is still noteworthy.
One smaller concern of mine is competition in the banking industry from challenger banks. Although the new kids on the block are far from gaining significant market share, they seem to be popular. This is based on recent customer service and satisfaction scores. I’ll keep an eye on how these challengers ramp up their assault on the banking aristocracy.
Final thoughts
Economic volatility is certainly my biggest concern, when I think about buying Natwest shares. However, this is superseded by the opportunity to buy shares in one of the largest banks in the UK. Plus, the attractive entry point helps my investment case. Furthermore, the passive opportunity tips the scales in favour of my buy column.
This post was originally published on Motley Fool
