Stock Analysis

National Bank of Canada's (TSE:NA) Dividend Will Be Increased To CA$0.87

TSX:NA
Source: Shutterstock

The board of National Bank of Canada (TSE:NA) has announced that it will be increasing its dividend by 23% on the 1st of February to CA$0.87. Although the dividend is now higher, the yield is only 3.1%, which is below the industry average.

See our latest analysis for National Bank of Canada

National Bank of Canada's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. National Bank of Canada is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to fall by 0.4%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 35%, which is comfortable for the company to continue in the future.

historic-dividend
TSX:NA Historic Dividend December 5th 2021

National Bank of Canada Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$1.32 in 2011, and the most recent fiscal year payment was CA$2.84. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see National Bank of Canada has been growing its earnings per share at 22% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On National Bank of Canada's Dividend

Overall, we always like to see the dividend being raised, but we don't think National Bank of Canada will make a great income stock. While National Bank of Canada is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 National Bank of Canada analysts we track are forecasting continued growth with our free report on analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.

Valuation is complex, but we're helping make it simple.

Find out whether National Bank of Canada is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.