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National Australia Bank Limited (ASX:NAB) will increase its dividend from last year's comparable payment on the 16th of December to A$0.85. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.
See our latest analysis for National Australia Bank
National Australia Bank's Payment Expected To Have Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.
National Australia Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on National Australia Bank's last earnings report, the payout ratio is at a decent 74%, meaning that the company is able to pay out its dividend with a bit of room to spare.
The next 3 years are set to see EPS grow by 7.6%. Analysts forecast the future payout ratio could be 74% over the same time horizon, which is a number we think the company can maintain.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$1.98 in 2014, and the most recent fiscal year payment was A$1.70. The dividend has shrunk at around 1.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.1% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Our Thoughts On National Australia Bank's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Australia Bank that investors need to be conscious of moving forward. Is National Australia Bank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.