I love to search the FTSE 100 for the best bargain stocks to buy. And recently the cheap NatWest Group (LSE: NWG) share price has grabbed my attention.
At current prices around 224p per share, it seems this popular banking stock offers particularly great value from an income perspective. It doesn’t look too pricey when you consider its earnings prospects either.
A high dividend stock
City analysts are expecting NatWest’s earnings to fall 8% in 2022 as economic pressures in the UK worsen.
This isn’t exactly cause for celebration. But it does mean that NatWest’s share price commands a forward price-to-earnings (P/E) ratio of 10.6 times. It’s a smidgen above the industry average of around nine times for the major banks but doesn’t look expensive.
NatWest’s current share price looks really attractive when you consider the dividend yield, however.
The number crunchers think NatWest will lift the annual dividend by around 25% in 2022. This creates a bulky 5.8% dividend yield.
NatWest’s yield beats the broader FTSE 100 average of 3.5%. It also sprints past the yields of Lloyds (5.3%), Barclays (5.2%) and HSBC (4.1%) among others.
Rates to rise
As I say, 2022 is gearing up to be a tough year for the banks as the cost of living crisis worsens.
However, a backdrop of rising interest rates is lessening the impact for NatWest and its peers in the short term. And over the medium term they could significantly boost profits at the FTSE 100 firm.
Higher interest rates are good for banks because they increase the profits they make on their lending activities. Comments from a senior Bank of England policymaker suggest that more could be coming down the line very soon.
Monetary Policy Committee member Catherine Mann has said rates may have to rise now to lessen tightening over the longer term. The Bank’s latest hike was the third monthly raise in a row.
More good things!
There are other reasons to like NatWest today, too. The bank is one of the country’s top five mortgage lenders, giving it significant exposure to the super-robust housing market.
NatWest is also financially strong and it had a CET1 capital ratio of 18.2% as of December. This means it could continue to offer market-beating dividends and embark on other measures like more share buybacks.
Should I buy NatWest?
All that being said, I myself don’t find NatWest that attractive even in spite of its cheap share price.
I believe the bank could see revenues sink as the British economy comes to a standstill. It might also be hit by a tsunami of bad loans as the cost of living crisis worsens.
Meanwhile, the competitive threat posed by the challenger banks like Monzo and Starling Bank continues to grow. This is a long-term problem and NatWest will have to spend heavily to stop its market share slipping.
I also don’t like NatWest’s lack of exposure to fast-growing international markets. This threatens to have a significant impact on future profits growth.
Those big dividend yields at NatWest certainly look attractive. But they’re not enough to encourage me to invest in the FTSE 100 bank right now.