Here’s how much I’d need to invest in NatWest shares to earn £1,000 a year in passive income

Share on NatWest Group (LSE:NWG) has been on a tear lately. In the last month, the SHOP share price changed to +9.16%.

This might look like I need to invest around £19,000 to get £1,000 in annual passive income. But this is not true – the actual figure is slightly less.

Share buybacks

Dividends are one way NatWest shareholders can get a return on their investment. But that’s not the only way the company returns money to its owners.

Like many banks, NatWest often engages in share buybacks. As a result, the number of outstanding shares decreased from 11,083 at the end of 2017 to 9,929 at the beginning of this year.

Stock repurchasing does two things. This increases the value of the remaining shares, but also allows shareholders to generate passive income by selling a portion of their shares.

NatWest has reduced its shareholding by an average of 2.18% per year since 2017. So shareholders can sell 2.18% of their investment per year without diluting their stake in the business.

Adding this to the current dividend yield takes the total return of passive income available to shareholders to 7.34%.

At that rate, the amount I need to invest to earn £1,000 a year in passive income is not £19,000. That’s right 13,623.

Risk

Share buybacks are often rare and difficult to predict – even more so than dividends. But NatWest has done more than any other UK bank to reduce its share count over the past five years.

It should be noted that over the past five years, NatWest has done more to reduce its share count than any other UK bank.

Savings	Number of shares in December 2017	Number of shares in December 2022	% change
NatWest	11,083	9,929	-10.41
Lloyds	72,393	69,682	-3.74
Barclays	17,284	16,867	-2.41
HSBC	20,072	19,986	-0.43

I think this makes NatWest particularly attractive from a passive income perspective. But there are also some important risks to consider.

One of the distinctive features about the bank is that the British government still owns around 62% of the company. I see this as a risk from an investment perspective.

Having the government as a major shareholder could make it difficult for NatWest to operate independently. In particular, they have not been able to increase efficiency by reducing staff in the way that other banks have been able to.

I don’t expect this to be a problem for the long term, though. The government has made it clear that it intends to divest its stake in the bank, which should give it more flexibility in the future.

Should I buy NatWest shares?

Dividend yields at UK banks are all within 1% of each other. So I think NatWest’s buyback activity makes it a superior option when it comes to passive income.

My plan is to keep this stock for a while. It’s a volatile time in the banking sector, I want to see what the British government is doing with stocks when I’m looking for buying opportunities.