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Shares at NatWest (NWG.L) climbed as much as 8% on Friday after the company announced an £1.8bn ($22bn) dividend as profits rose.
The payout means that the UK government is set to rake in £1bn thanks to its near-50% stake in the group after its £46bn state bailout at the height of the 2008 banking crisis.
The lender posted a pre-tax operating profit of £2.6bn in its latest six months, up 13% compared to the previous year, and ahead of analysts’ expectations.
Income came in at £6.2bn during the period, and the bank raised its full-year guidance.
It reported “strong growth” in lending and deposits across the business, driven by rising interest rates that meant it could charge borrowers more for loans and mortgages.
The Bank of England (BoE) is widely expected to increase interest rates again next week, with the markets betting on an increase of half a percentage point to 1.75%, to combat runaway inflation.
Inflation has now climbed to 9.4%, a 40-year high, and central bank forecasts next week could point to inflation peaking at 12% in October.
NatWest added that it had released £46m from the impairment charges previously set aside.
The special dividend worked out to be 16.8p per share, and it also declared an interim dividend of 3.5p per share.
“NatWest Group delivered a strong performance in the first half of 2022, building on two years of progress against our strategic priorities,” Alison Rose, chief executive, said.
“We are growing our lending to customers and continuing our £3bn investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders.”
The payout comes despite a 5% fall in profits in the second quarter to £1.4bn, down from £1.5bn a year earlier. However, this was better than the £940m expected, according to consensus estimates.
The bank handed out £661m of green mortgages over the first six months of the year, which give lower interest rates to homes that are more energy-efficient, while it also contacted 2.7 million consumers and businesses by the end of July to offer help on managing their budgets.
Richard Hunter, head of markets at Interactive Investor, said: “NatWest’s continued progress has left the bank awash with cash, which has resulted in a bumper return for shareholders.
“Amid all the progress, there are some challenges on the near horizon, not least of which is the potential for further UK economic deterioration.
“NatWest remains committed to keeping close to any worsening trends, however, and in the meantime continues to increase prudent lending against the backdrop of a robust balance sheet. The government stake will continue to overhang the shares, although the direction of travel is becoming established in reducing the 48% holding further.
“Even prior to today’s surge, the price had risen by 14% over the last year, as compared to a gain of 3.8% for the wider FTSE 100. Nor has this return diminished investor appetite, with the market consensus of the shares not only remaining at a strong buy but also maintaining the position of NatWest as the preferred play in the sector.”