Down 24%, is it time to buy this high-yielding FTSE 100 bank stock?

Down 24%, time to buy these high-yielding FTSE 100 banking stocks?

In my view, a valuation gap has emerged for NatWest Bank (LSE: NWG ) FTSE 100 shares.Investors' attention has focused on the mishandling of former politician Nigel Farage's account at NatWest-owned private bank Coutts.The bank's shares therefore did not respond to the excellent first-half results published on 28 July. It seems to me that they add to many other positives that are not currently reflected in the share price. As it is, this UK 'big four' bank, which returned 11.4% last year, is down 24% since February.Given recent events, the stock is at risk of further public relations disasters. Another is for a reversal in the Bank of England's (BoE's) current policy of raising interest rates.

Implied state guarantee

Ahead of this latest advertising disaster, NatWest shares fell on fears of a new banking crisis.These began with rumors in mid-February of the imminent failure of Silicon Valley Bank. Its collapse in March, followed by the collapse of Credit Suisse, pushed banking stocks down around the world.

However, following the Great Financial Crisis (GFC), UK banks were forced to maintain a core capital ratio (CET1) above 10%. At the time of the collapse of SVB and Credit Suisse, NatWest's CET1 was 14.4%.

And the government still has a 38.6% stake in the bank as an additional guarantee. NatWest's first-half results showed a pre-tax profit of £3.6bn, compared with £2.6bn in the same period last year. This was mainly due to operating in a perfect interest rate environment for banks.

UK interest rates are forecast to rise until at least the end of H1 2024. So banks' net interest margin (NIM) - the difference between lending income and deposit payouts - will therefore continue to rise.For NatWest, H1 NIM was 3.2% compared to 2.58% in H1 2022. Star Shareholder Rewards

These extraordinary profits enabled it to announce an interim dividend of 5.5p per share.It also intends to launch a share buyback program of up to £500m in the second half. This will be in addition to the £1.3bn managed buyback completed in Q2.One thing that struck me here was that the bank's interim dividend was just 3.5p in 2022. But it ended up paying a yield of 11.4%.

If it stayed at this level, £10,000 invested now would give me £1,140 in passive income in a year. In 10 years I would have an extra £11,400 to add to my initial investment of £10,000.This return would not include additional gains from any dividend reinvestment or share price appreciation. On the other hand, there would of course also be tax obligations.

I already have holdings in the sector but even with those I am seriously considering buying NatWest shares. One of the reasons is that I think over time they will recoup all their losses from February. This will close the valuation gap I see.Another reason is healthy yields, which I think will remain in place for this year. After falling 24%, is it time to buy this high-yielding FTSE 100 banking stock? appeared first on The Motley Fool UK.

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More reading

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Simon Watkins has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks listed. The opinions expressed about the companies mentioned in this article are the opinions of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that we are better investors with a diverse range of insights.

In the dynamic world of investing, opportunities often arise when the market presents us with undervalued assets. One such candidate that has gained attention recently is the FTSE 100 High Yield Banking Shares, which have seen their value fall significantly by 24%. This significant decline begs the question: Is now the right time to consider investing in this banking stock? In this article, we'll delve into the factors driving the stock's performance, analyze its high-yield potential, and assess whether it's a prudent move to buy during this downturn.

Understanding the Decline:

The FTSE 100 bank's recent 24% fall in value is the result of a number of factors, from wider market volatility to sector-specific challenges. Global economic uncertainties, interest rate fluctuations and regulatory changes contributed to the bank's valuation decline. While such dips can be worrisome, they can also create an opportunity for savvy investors to pick up on undervalued assets.

Assessing High Yield Potential:

One of the interesting aspects of this bank stock is its high yield potential, making it an attractive option for income-oriented investors. As a stock's price falls, its dividend yield increases, assuming the dividend payout remains consistent. This means that investors have a chance to secure a higher return compared to when the stock was trading at a higher value. For income-seeking investors, this increased yield could be a compelling reason to consider adding this banking stock to their portfolios.

Market and Industry Comparison:

To determine whether this FTSE 100 banking stock's decline is an outlier or part of a wider trend, it is essential to compare its performance to the market as a whole and to peer sectors. If the decline in stocks is in line with a broader market correction or sector-specific challenges, this may not be an isolated problem. However, if the underperformance of bank stocks appears to be independent of market or sector dynamics, this could indicate a potential opportunity to buy low.

Financial Health Analysis:

Before any investment decision, checking the financial health of the bank is paramount. Examining key financial ratios such as earnings per share, revenue growth and debt levels can provide insight into a bank's resilience and ability to withstand downturns. If the fundamentals remain strong despite the share price decline, this could indicate a temporary decline rather than a long-term decline.

Risk Mitigation:

While the potential for high returns is enticing, it is important to recognize and mitigate the associated risks. Economic uncertainty, regulatory changes, and competitive pressures may affect a bank's future performance. Diversification and a thorough understanding of the bank's business model, strategies and risk management practices are essential for an informed investment decision.

Final Verdict:

Investing in a high-yielding FTSE 100 banking stock, which has fallen 24%, requires careful consideration. While the downturn may present an opportunity to secure a higher dividend yield, investors need to do their due diligence, assess the broader market context and understand the bank's financial health. If fundamentals remain strong and the bank's challenges appear manageable, it may indeed be a good time to buy. However, it is advisable to consult financial advisors and do in-depth research before making any investment decision.

In the ever-changing world of investing, a 24% fall in the value of high-yielding FTSE 100 banking stocks will spark intrigue. As investors consider buying decisions during this downturn, a comprehensive analysis of market trends, sector performance, financial health and associated risks is essential. If the pieces of the puzzle align, this banking stock's plunge could be the gateway to a lucrative investment opportunity that offers both potential capital appreciation and a robust dividend yield.