Is National Australia Bank Ltd.’s 6% dividend safe?

Credit: NAB

National Australia Bank Ltd. (ASX: NAB) shares offer an enviable 6% fully franked dividend yield – that’s more than 8.5% grossed up!


Data source:


Is NAB’s dividend in doubt?

As can be seen in the chart above, NAB’s interim and final dividend payments have risen significantly since the early 80’s. But another thing you will notice is that it has not always been a consistent rise.

For example, in the late 80’s, early 90’s and during the GFC era (2008 thru 2009), the bank cut its dividend payments considerably. They reset, then continued upwards.

The reason many investors are concerned about the bank’s dividend payment in 2017 can be put down to potential changes in banking regulation. The Basel Committee, which sets out the regulatory requirements for the global banking system, is expected to increase the capital limits for banks. Given banks will need to keep more capital, they may be required to slow their dividend payments.

Analysts from Morgan Stanley are tipping a dividend cut from NAB in 2017, according to Fairfax Media.

But it is not just Morgan Stanley, according to Morningstar’s consensus analyst forecast the bank is expected to pay dividends totalling $1.93 per share in 2017, down from $1.98 last year.

Foolish Takeaway

National Australia Bank is undergoing a series a big changes to its operations to make it a more focused and efficient bank. Meanwhile, regulation is mounting.

Although the dividend could be cut in 2017, I think it’s important to note that a $1.93 per share dividend is still equivalent to a yield of 6.1% fully franked at today’s share prices. That is a pretty substantial dividend by anyone’s standards!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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