Should Income Investors Look At National Australia Bank Limited (ASX:NAB) Before Its Ex-Dividend?

By
Simply Wall St
Published
May 09, 2021
ASX:NAB

It looks like National Australia Bank Limited (ASX:NAB) is about to go ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 13th of May will not receive this dividend, which will be paid on the 2nd of July.

National Australia Bank's upcoming dividend is AU$0.60 a share, following on from the last 12 months, when the company distributed a total of AU$0.90 per share to shareholders. Calculating the last year's worth of payments shows that National Australia Bank has a trailing yield of 3.4% on the current share price of A$26.78. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether National Australia Bank can afford its dividend, and if the dividend could grow.

View our latest analysis for National Australia Bank

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately National Australia Bank's payout ratio is modest, at just 38% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
ASX:NAB Historic Dividend May 9th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by National Australia Bank's 10% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. National Australia Bank's dividend payments per share have declined at 5.4% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid National Australia Bank? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.

If you want to look further into National Australia Bank, it's worth knowing the risks this business faces. For example - National Australia Bank has 2 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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