The National Australia Bank Ltd (ASX: NAB) share price is relatively flat when compared to its performance 5 years ago. This is despite the general investment belief that blue chip companies deliver reasonable returns over the long term.
Looking back at 29 July 2016, the bank's shares were trading at $26.54 apiece. Today, you can pick up the same shares for $25.91 – that's 2% cheaper than they were 5 years ago.
Many investors assume the company's strong bi-annual dividend payout makes up for any potential loss in share price growth. Further strengthening the argument, NAB traditionally pays full-franked dividends, even during COVID-19.
Franking credits (otherwise known as imputation credits) are highly regarded in the investing world. This is a type of tax credit that is passed onto shareholders when dividend payments are made by a company. Essentially, the company is paying the tax on the dividends received by the shareholders.
So, has the NAB share price provided value over the last 5 years? Below, we take a closer look to see if it has been worth investing in the company's shares solely for its dividends.
Have NAB's dividends paid off in the long run?
The NAB share price has been mostly stable over the past 5 years, excluding a significant drop during 2020 caused by COVID-19.
Here's a list below of NAB's historical dividends paid out to shareholders in the past 5 years.
- December 2016 – 99 cents (100% franked)
- July 2017 – 99 cents (100% franked)
- December 2017 – 99 cents (100% franked)
- July 2018 – 99 cents (100% franked)
- December 2018 – 99 cents (100% franked)
- July 2019 – 83 cents (100% franked)
- December 2019 – 83 cents (100% franked)
- July 2020 – 30 cents (100% franked)
- December 2020 – 30 cents (100% franked)
- July 2021 – 60 cents (100% franked)
Calculating the difference
Let's say an investor bought $10,000 worth of NAB shares this time 5 years ago. They would have a total of 376 shares ($10,000 / $26.54). If we multiply that with the current NAB share price, this investor would be sitting at $9,742.16 (376 shares x $25.91).
While this appears to be a loss of $257.84 from the original investment made, the games changes when dividend payments are factored in.
Over the past 5 years, our investor would have picked up $7.81 worth of dividends (addition of all historical dividend payments above). With this amount, we multiply it with the current shareholding (376 NAB shares), which gives us a figure of $2,936.56.
Add this to the $9,742.16 that is the present value of the 376 shares, and investors would be an extra $2,678.72 ahead sitting on $12,678.72 ($9,742.16 + $2,936.56).
This means that if you invested in NAB 5 years ago, you would be better off now, thanks to the dividends. Although, it is worth noting that this does not include the franking credits that offset tax to be paid. So, in hindsight, NAB shareholders would have made the right choice in keeping their shares for the long term.
NAB share price summary
Glancing at a shorter time frame, NAB shares have accelerated in the past 12 months, up 44%. In 2021, the company's share price is also in the green, up 14%.
NAB commands a market capitalisation of roughly $85.48 billion, with almost 3.3 billion shares on hand.
