Can the National Australia Bank Ltd (ASX: NAB) share price be a dividend opportunity at the current level?
What’s happening to the big bank right now?
NAB shares have essentially been flat over the last month. But over the last six months the share price has risen almost 20%.
A month ago the business reported its HY21 result.
The big four ASX bank reported that it generated $3.34 billion of cash earnings for the half, this was up 94.8% year on year.
The cash profit measure showed 35.1% growth year on year when excluding the large notable items in the first half of FY20 ($91 million of customer remediation and $668 million of a capitalised software policy change). Statutory net profit came was $3.21 billion.
The net interest margin (NIM), declined by 4 basis points (0.04%) to 1.74%. NAB told investors this reflects a lower earnings rate on deposits and capital due to the low interest rate world we’re living in. There was also competitive pressures, partly offset by lower funding costs and home loan repricing.
Expenses decreased 18.6%. Excluding large notable items, in the first half of FY20, expenses rose 3.1% mainly reflecting provisions for higher performance-based compensation and additional customer facing and support roles, partly of productivity gains. However, compared to the second half of FY20, expenses fell 1.8%.
A helpful part of this result was an impairment write-back/benefit of $128 million compared to a charge of $1.16 billion a year ago. However, the ratio of loans 90+ days past due continue to climb – rising to 1.23% in the latest half. This was up from 1.03% in the second half of FY20 and 0.97% in the first half of FY20.
NAB’s dividend
NAB revealed that its common equity tier 1 (CET1) ratio increased by a further 90 basis points to 12.37% over the six month period.
The bank’s board decided to declare a fully franked dividend of 60 cents per share, double the size of HY20 and the same as the entire FY20 dividend.
If it pays $1.20 per share for the whole of FY21, that would translate to a fully franked dividend yield of 4.4%.
Is there a further growth opportunity for the NAB share price and dividend?
I’m not sure how much further the big bank can run without further profit growth – which is ultimately one of the biggest drivers of the share price and dividend.
In FY22, CommSec projections suggest that NAB’s dividend could grow to $1.30 per share, which would be a fully franked yield of 4.8%.
Whilst this year’s and next year’s yields aren’t bad, I think investors should be looking for businesses with more growth potential. Banks like NAB are not just high-yield term deposit investments. It’s the compounding effect that makes the best returns over time.
I have my eyes on other ASX dividend shares that might be more compelling income picks for the long-term.
