Is National Australia Bank Ltd about to slash its dividend?

Analysts at Goldman Sachs think National Australia Bank Ltd. (ASX:NAB) will cut its dividend this week. Should you be concerned?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It looks likely to be a big week for the shareholders of banking giant National Australia Bank Ltd. (ASX: NAB).

On Thursday NAB will report its full year profit and analysts are expecting the bank to report a $6.6 billion cash profit according to Bloomberg.

But not all eyes will be firmly fixed on its profits. According to a report in the Australian Financial Review today, analysts at Goldman Sachs are looking out for a cut to its dividend.

The investment bank's analysts believe that NAB's payout ratio is unsustainably high and it will have to follow the lead of rival Australia and New Zealand Banking Group (ASX: ANZ) and finally make a dividend cut.

In order to keep the bank's Tier-1 capital ratio above 10%, they believe NAB will have to cut its final dividend down from 99 cents to 89 cents per share.

That would make the full year dividend a fully franked $1.88 per share, which still works out to be a generous 6.8% yield at the current share price.

Is this anything to panic about? I don't personally think it is. Even if NAB cuts its final dividend and then its interim dividend next year the yield it provides at the current price will still remain well above average.

Furthermore, the only bank in the big four to have cut its dividend this year is ANZ. Since the cut its shares have rallied strongly and are by far the best-performing bank shares this year. In fact, it's the only bank in the big four to have its shares in positive territory in 2016.

So overall I don't think investors should be too concerned with the possibility of a dividend cut. It might well prove to be the catalyst to finally getting its share price climbing higher again.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »