Is National Australia Bank Ltd (ASX: NAB) about to cut its dividend?
NAB may just have indicated that a dividend cut could be under consideration based on its announcement regarding its half year results and royal commission remediation.
In the market release the major ASX bank said "the matters in this announcement remain subject to finalisation of NAB's 2019 Half Year results, including review by the auditors and, as is the usual practice, the Board will also review NAB's dividend settings."
The NAB Board may well review the dividend every time, but this could be the time where they decide a dividend cut is actually necessary.
In the potentially-fateful announcement NAB outlined that it is booking additional charges of $749 million, or $525 million after tax, of customer remediation. FY19 first half cash earnings will be reduced by an estimated $325 million and earnings from discontinued operations will be reduced by an estimated $200 million.
There are not many businesses on the ASX that could sustain a $525 million hit to profit without reducing the dividend. To put this in context, NAB's 2018 full year underlying cash earnings were $6.5 billion and the half-year cash earnings were $3.3 billion excluding "restructuring costs".
Foolish takeaway
If NAB is to pay a less-than-100% dividend payout ratio in the HY19 result it may well have to reduce the dividend, particularly when considering the CET1 ratio.
However, if the NAB Board consider the customer remediation as a one-off cost, they may be able to justify maintaining the dividend.
With a trailing grossed-up dividend yield of 11.2% the NAB dividend looks attractive, although don't be surprised if it turns out to be a little too good to be true over the next year.
