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National Bank of Canada (TSE:NA) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 4.1% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at National Bank of Canada in more detail.

View our latest analysis for National Bank of Canada

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

How well does National Bank of Canada fit our criteria?

The company currently pays out 41% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect NA’s payout to remain around the same level at 41% of its earnings, which leads to a dividend yield of 4.4%. Moreover, EPS should increase to CA$6.16.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. NA has increased its DPS from CA$1.24 to CA$2.48 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

Compared to its peers, National Bank of Canada has a yield of 4.1%, which is high for Banks stocks but still below the market’s top dividend payers.

Next Steps:

Keeping in mind the dividend characteristics above, National Bank of Canada is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three essential factors you should further research: