NatWest (LSE:NWG) shares are up 5.4% for the reason that begin of the yr. As such, £10,000 invested in the beginning of the yr would now be price £10,540. What’s extra, an investor could be eligible to obtain 15.5p per share within the type of dividends, with the inventory going ex-dividend on 13 March, and the cost due on 28 April. Nevertheless, an investor would have skilled numerous volatility in current weeks. Let’s discover that.

Trump’s commerce coverage

Donald Trump’s tariffs have ripped via monetary markets. And whereas NatWest, a significant UK-focused financial institution, is sheltered from any major impression, the financial penalties not directly have an effect on British banks via a number of channels.

Firstly, sentiment is essential. Shares in NatWest dropped by 7%-8% following the announcement of the tariffs. This mirrored broader market volatility and investor issues a couple of potential international recession. The uncertainty surrounding commerce wars typically results in lowered enterprise confidence, which may dampen funding and borrowing. This can be a key income streams for banks.

Subsequent, there’s credit score circumstances and dangerous debt. The tariffs have elevated fears of an financial slowdown or recession, prompting expectations of decrease rates of interest from central banks just like the Financial institution of England. Decrease charges can compress web curiosity margins, a important supply of profitability for banks equivalent to NatWest. Moreover, increased tariffs enhance prices for companies, doubtlessly resulting in better mortgage defaults and better credit score danger provisions.

Furthermore, whereas the UK financial system has comparatively low direct publicity to US exports (round 1.5% of GDP), the worldwide nature of monetary markets signifies that disruptions within the US financial system can nonetheless impression UK banks. NatWest should additionally navigate potential foreign money fluctuations and inflationary pressures attributable to disrupted provide chains.

Good worth on paper

NatWest’s forward-looking metrics for 2025 and past are enticing. Nevertheless, buyers ought to stay cautious as Trump’s tariffs might result in revisions in earnings forecasts. Assuming that the commerce coverage will enhance is probably silly.

Presently, the financial institution’s ahead price-to-earnings (P/E) ratio is 7.5 occasions, indicating relative undervaluation in comparison with friends. This determine falls to six.6 occasions for 2026 and 6.3 occasions for 2027.

Dividend forecasts are additionally promising. The anticipated payout for 2025 of £0.28 per share, equates to a ahead yield of 6.8%. And with earnings per share (EPS) projected to come back in at £0.55, the dividend seems very sustainable with a payout ratio round 50%.

Nevertheless, buyers ought to hold their eyes peeled for analysts revisions. Right now, it’s very onerous to touch upon future earnings, however we are going to study extra as Trump’s commerce negotiations/lack of negotiations lead to a clearer tariff outlook. However one factor is obvious, tariffs are most unlikely to be optimistic.

Personally, I’m not including NatWest shares to my portfolio in the mean time. As a substitute, I’m letting market volatility play out. I consider issues will worsen earlier than they get higher.