National Bank of Canada (TSE:NA) Is Increasing Its Dividend To CA$1.18

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4 days ago

The board of National Bank of Canada (TSE:NA) has announced that it will be paying its dividend of CA$1.18 on the 1st of August, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 3.5%, which is below the industry average.
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While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.
Having distributed dividends for at least 10 years, National Bank of Canada has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 42%, which means that National Bank of Canada would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to expand by 9.4%. Analysts estimate the future payout ratio will be 44% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for National Bank of Canada
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$1.92 in 2015, and the most recent fiscal year payment was CA$4.72. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that National Bank of Canada has grown earnings per share at 9.4% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We should note that National Bank of Canada has issued stock equal to 15% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Overall, a dividend increase is always good, and we think that National Bank of Canada is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for National Bank of Canada that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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