Why is the NAB share price sinking today?

This banking giant's shares are having a tough session. But why?

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The National Australia Bank Ltd (ASX: NAB) share price is falling on Tuesday.

In early trade, the banking giant's shares are down almost 2.5% to $33.88.

This is despite the ASX 200 index pushing 0.5% higher this morning.

Why is the NAB share price tumbling?

The weakness in the bank's share price today could actually be classed as good news for its shareholders.

That's because the NAB share price is falling today in response to trading ex-dividend for the bank's upcoming interim dividend payment. This means payday is approaching for eligible shareholders!

Going ex-dividend

When a company's shares go ex-dividend, it means the rights to a pending dividend payment are now settled. As a result, anyone buying its shares from this point will not be entitled to receive this payout when it is made.

Instead, the rights to the dividend remain with the seller, even if they no longer own those shares when the payment date arrives.

Given that a dividend forms part of a company's valuation, its share price will tend to drop in line with the value of the payout on the ex-dividend date. After all, new buyers of its shares don't want to pay for something they won't receive.

In the case of NAB, last week it released its half-year results and declared its latest dividend. NAB reported a 0.9% decline in net operating income to $10,138 million and a 12.8% decline in cash earnings to $3,548 million. The latter was largely in line with the consensus estimate of $3,553 million.

This earnings decline couldn't stop the NAB board from increasing its interim dividend by 1.2% to a fully franked 84 cents per share. It is this dividend that NAB's shares are going ex-dividend for this morning.

Eligible shareholders can now look forward to being paid this dividend in just under two months on 3 July.

What's next for the NAB dividend?

A recent note out of Goldman Sachs reveals that its analysts expect another 85 cents per share fully franked final dividend in November. This will bring its total dividends for FY 2024 to $1.68 per share.

After which, the broker expects the NAB board to keep its dividend on hold at this level for the foreseeable future.

It is forecasting fully franked $1.68 per share dividends each year until at least FY 2028. Based on the current NAB share price of $33.88, this will mean dividend yields of 5% per annum over the period.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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