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Why the NAB share price dropped 5% lower today

In morning trade the National Australia Bank Ltd (ASX: NAB) share price has been amongst the worst performers on the S&P/ASX 200 index.

At the time of writing the banking giant’s shares are down almost 5% to $24.21.

Why is the NAB share price down 5%?

Whilst concerns over a trade war between the United States and China escalated overnight and has sent the Australian share market sharply lower, the majority of today’s decline has nothing to do with that.

Most of NAB’s share price decline today can be attributed to its shares trading ex-dividend this morning.

When a share trades ex-dividend it means it is trading without the rights to its next dividend, so anyone buying NAB’s shares today will not be entitled to its upcoming interim dividend.

In light of this, the share price will usually drop in value by the amount of the expected dividend.

What dividend is NAB paying?

When NAB released its half year results earlier this month it reported a 0.3% decline in cash earnings (excluding restructuring-related costs and customer-related remediation costs of $325 million) to $3,279 million.

In light of this result and its need to improve capital generation, the NAB board felt that it would be prudent to reduce its interim dividend by 16% to a fully franked 83 cents per share and partially underwrite the dividend reinvestment plan.

It did this because it felt that “these actions significantly strengthen NAB’s balance sheet providing greater confidence in our ability to exceed APRA’s ‘Unquestionably Strong Capital” requirements from 2020.”

Now that NAB’s shares have gone ex-dividend, those that were on the share registry at the close of play on Monday can look forward to being paid this generous dividend in seven weeks on July 3.

Next in line to trade ex-dividend is Westpac Banking Corp (ASX: WBC) on Thursday for its interim dividend.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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