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National Australia Bank (ASX:NAB) Will Pay A Larger Dividend Than Last Year At A$0.78

National Australia Bank Limited (ASX:NAB) will increase its dividend from last year's comparable payment on the 14th of December to A$0.78. Based on this payment, the dividend yield for the company will be 5.0%, which is fairly typical for the industry.

See our latest analysis for National Australia Bank

National Australia Bank's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

National Australia Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 69%, which means that National Australia Bank would be able to pay its last dividend without pressure on the balance sheet.

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The next 3 years are set to see EPS grow by 19.8%. Analysts estimate the future payout ratio will be 73% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

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historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of A$1.80 in 2012 to the most recent total annual payment of A$1.56. This works out to be a decline of approximately 1.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

National Australia Bank May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, National Australia Bank's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think National Australia Bank's payments are rock solid. While National Australia Bank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think National Australia Bank is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for National Australia Bank (1 is concerning!) that you should be aware of before investing. Is National Australia Bank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.

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