Is the National Australia Bank Ltd (ASX: NAB) share price a buy for dividends? It was in the headlines this week.
NAB shares have been rallying since the start of November 2020, its share price is around 4%. The major ASX bank just released its FY20 result which showed a sharp decline in profit and another dividend cut.
What was in the FY20 result?
NAB reported that its statutory net profit after tax (NPAT) was $2.56 billion, which was significantly impacted by COVID-19 effects.
The big ASX bank explained that its credit impairment charges rose by 201% to $2.76 billion. As a percentage of gross loans and acceptances, this represented an increase from 31 basis points to 46 basis points.
The FY20 credit impairment charges included $1.86 billion of additional forward looking collective provisions to reflect potential COVID-19 impacts. That included $388 million of provisions for targeted sectors experiencing elevated levels of risk including aviation, tourism, hospitality and entertainment, retail trade and commercial property.
In terms of arrears, NAB said that its ratio of loans that were over 90 days overdue and gross impaired assets, as a percentage of gross loans and acceptances, increased 10 basis points to 1.03%. NAB explained this increase was due to rising delinquencies in the Australian home loan portfolio where customers are not part of the COVID-19 deferral program.
The cash earnings were also impacted severely by the current conditions. Cash earnings fell 36.6% to $3.71 billion. After excluding the large notable items, cash earnings dropped by 25.9% to $4.73 billion.
There were several large notable items in the result including customer-related remediation, payroll remediation and impairments of property-related assets.
NAB dividend
NAB's board decided to declare a final dividend of 30 cents per share, bringing the full year dividend to 60 cents per share. That was a cut of around 64% compared to last year.
The bank said that maintaining a strong balance sheet is a key requirement. The final dividend represented 49.8% of continuing operations statutory earnings.
At the current NAB share price, the full year dividend amounts to a grossed-up dividend yield of 4.4%.
Some opinion on dividends
Dr Don Hamson from Plato Australian Shares Income Fund, which focuses on dividends, recently said: "In this current environment … the case for active management is strong. The old days of buying and holding the banks to get income is not going to work and you have to be active."
Plato put NAB's dividend outlook into a group of businesses ranked 'ugly'. Other businesses in that group include Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Scentre Group (ASX: SCG) and Insurance Australia Group Ltd (ASX: IAG).
Commonwealth Bank of Australia (ASX: CBA) was the only major domestic-focused ASX bank which had a 'bad' dividend outlook, rather than 'ugly'.
Plato commented in its annual report: "The last six months in particular was a period where avoiding the dividend traps was especially important as there were particular industries such as banking, retail property trusts, travel and energy stocks that underperformed significantly. In contrast, certain sectors such as the large gold and iron ore miners and well as consumer staples were largely unharmed by the economic environment."
If you're wondering which shares don't have 'ugly' dividend outlooks, Plato said that the following large ASX blue chips have good dividend outlooks: Rio Tinto Ltd (ASX: RIO), BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG), Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES), CSL Limited (ASX: CSL), Woolworths Group Ltd (ASX: WOW) and ASX Ltd (ASX: ASX).
