UK banks received unexpected positive news today – the Bank of England (BOE) raised the interest rates. What are the best banks to benefit from a rising interest rates environment?
In a surprising move for financial market participants, the BOE delivered the first hike after cutting the interest rates to the lower boundary at the start of the COVID-19 pandemic. Curiously enough, the bank did not hike when the market expected, in November, but it did when the market did not expect it in December.
As a result, companies in the financial services sector jumped on the news. UK banks stand to benefit when the central bank raises rates, and these are the three names to consider buying: Barclays, Standard Chartered, and NatWest.
Barclays’s stock price jumped by the most today on the Bank of England’s announcement. It closed more than 5% higher, and the YTD performance is 19.56% when writing this article.
This is one bank that has revenues growing faster than the sector median (27.31% vs. 20.40%). In an environment of rising interest rates, revenue growth should accelerate – an incentive to own the stock.
Another incentive is the semiannual dividend paid. The payout ratio is 9.12%, and the dividend yield is 1.74%. Furthermore, the P/E ratio looks attractive here – only 5.77, lower than most of its peers.
Standard Chartered is a diversified bank based in the United Kingdom. It employs over 84,000 people and provides banking products and services worldwide.
The stock price jumped on the BOE’s surprise rate hike and closed the day 2.73% higher. This is good news for investors because the YTD performance is negative.
Banks typically outperform in an environment of rising interest rates, and Standard Chartered is even more attractive because it pays a dividend. The payout ratio is 21.45%, and the dividend yield is 2.17%. Moreover, the P/E ratio is 7.09 and is projected to decline and reach 4.96 by 2025.
NatWest is a diversified bank based in Edinburgh, United Kingdom. It employs close to 59,000 people and offers banking products and services to individuals and businesses.
It pays a semiannual dividend and the dividend payout ratio is 61.63%. Moreover, the dividend yield is 2.85% and the stock price is up over 28% YTD. Today alone, it gained 2.76% as higher rates are beneficial to companies in the financial services sector.