Stock Analysis

National Bank of Canada (TSE:NA) Has Affirmed Its Dividend Of CA$0.71

TSX:NA
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The board of National Bank of Canada (TSE:NA) has announced that it will pay a dividend on the 1st of November, with investors receiving CA$0.71 per share. This means the annual payment will be 2.9% of the current stock price, which is lower than the industry average.

Check out our latest analysis for National Bank of Canada

National Bank of Canada's Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, National Bank of Canada was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 6.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
TSX:NA Historic Dividend August 29th 2021

National Bank of Canada Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the first annual payment was CA$1.32, compared to the most recent full-year payment of CA$2.84. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see National Bank of Canada has been growing its earnings per share at 19% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for National Bank of Canada's prospects of growing its dividend payments in the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for National Bank of Canada for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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