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The London Stock Exchange is filled with tremendous dividend stocks creating lucrative passive income opportunities for investors. However, very few businesses come close to spending the most on dividends than NatWest Group (LSE:NWG).
With a dividend yield of only 4.6% it may not seem like the biggest dividend-payer out there. But in the last five years, shareholders have received more than £9bn in payouts. And at the same time, the bank stock’s also shot up by 314%.
Combined, it means that anyone who invested £10,000 back in October 2020 is now sitting on close to £56,386 – a 464% total return!
Considering the FTSE 100‘s only delivered a roughly 100% total gain over the same period, NatWest stock pickers are vastly outperforming passive index investors right now. Of course, the question now becomes, will this trend continue?
Here’s what the experts are saying.
What’s on the horizon?
As a leading British banking institution, NatWest has been a massive beneficiary of higher interest rates over the last few years. The profit margins on its lending activities have surged, resulting in a massive influx of earnings, driving the share price higher.
But now that interest rates are slowly falling, will the NatWest share price follow?
That’s definitely an important risk to consider, but lower rates aren’t necessarily a bad thing. That’s because as mortgages and business loans become more affordable, demand rises, leading to a higher volume of loans being issued. So while margins might get squeezed, this impact may ultimately be offset by higher lending activity.
As such, when looking at the latest analyst forecasts, many experts remain bullish, with the team at JP Morgan being among the most bullish. In fact, they’ve recently increased their 12-month share price target from 610p to 700p. And compared to where the stock trades today, that’s another potential 28% capital gain combined with a 4.7% dividend yield.
What to watch
Even among the bulls, analysts have pointed out some crucial threats and challenges that might make NatWest shares fall short of expectations.
As previously mentioned, lower interest rates might not be problematic if they’re offset by higher lending volumes. But there’s no guarantee this will materialise, especially given that the UK economy isn’t particularly strong.
Rising inflation and lower consumer spending are squeezing the wallets of both households and businesses. And if conditions continue to deteriorate, analysts are mindful of a potential rise in loan defaults and higher credit losses for NatWest as well as other banks.
The bottom line
All things considered, I remain optimistic for NatWest’s long-term potential as both a growth and dividend stock. But with a strong dependence on domestic economic conditions, the bank’s facing an increasing level of near-term uncertainty that could spark volatility in its share price and dividend payouts.
With that in mind, I’m looking elsewhere for dividend and growth opportunities right now.