Friday, January 22, 2016

National Bank of Canada

Sound bite for Twitter and StockTwits is: Buy at 5.7% yield. Who knows where the markets will go from here. They may head lower and they may not. However, the stock is still relatively cheap. See my spreadsheet on National Bank of Canada.

I do not own this stock of National Bank of Canada (TSX-NA, OTC-NTIOF). I thought I should follow one of the smaller Canadian Banks. This seems like a good choice.

This is one of the smaller banks of Canada. It has a moderate to good yield and the growth of dividends is moderate. The current dividend yield is 5.7% and the 5 year median dividend yield is 4.08%. These are good yields, as I believe any yield over 4% is. The historical median yield is moderate and somewhat lower at 3.89%. The dividend growth is 10% and 9.2% per year over the past 5 and 10 years.

This bank did quite well in the last financial crisis as it only held its dividends flat for two years of 2009 and 2010. The last dividend increase was this year and it was for 3.9%. This bank also tends to increase dividends more than once in a year and the total dividend increase in 2015 was 9%.

If this bank continues to raise dividends at 10% a year, in 5 and 10 years' time you could be earning 14.8% and 23.8% on a purchase today if at $37.90. The 10 year median dividend yields on original stock price if price was median price over the last 5, 10 and 15 years are dividend yields of 6.7%, 10.1% and 21.2%. For example, after 5 years this stock purchased over the past 10 years at a median price had a median dividend yield of 6.7%.

This stock's price fell by 18.5% in 2015 and 6% so far this year. This means that total return to date is rather low. The 5 and 10 year total return to date is 7.11% and 5.65% per year. The portion of this total return attributable to dividends is 5.07% and 4.23% per year. The portion of this total return attributable to capital gains is 2.04% and 1.42% per year. The beauty of dividend growth stocks is that even though the stock price is falling, dividends have grown at 9% last year and 7% so far this year.

Dividend Payout Ratios for EPS for 2015 was 44.4% and the 5 year median is 38.7%. The DPR for CFPS for 2015 was 10.6% and the 5 year median is 14.6%. This bank would appear to be able to afford its dividends and its dividend growth.

The Debt Ratio at 1.06 is fine for a bank. The Leverage and Debt/Equity Ratios are a little high for a Canadian Bank at 19.03 and 18.03. (The other banks are in the 16.00 and 15.00 range.)

The Return on Equity on Comprehensive Income has a tendency to be lower than the ROE on Net Income. In 2015 the ROE on Net Income was 18.9% and its 5 year median was 18.9%. The ROE on Comprehensive Income was 12.9% and its 5 year median was 14.9%. When this happens it suggests that the EPS may not be of the best quality. This is a cautionary note.

The CEO owns shares worth around $6.5M and the Chairman owns shares worth around $0.9M. One of the officers of this bank owns shares worth $1.9M. This is a good sign and a positive note.

This Newswire article is about this bank issuing preferred shares recently. This article on EMQ News Analysis talks about recent analysts ratings on this bank. See recent analysts' comments on Stock Chase. (Note that according to my records it was 1992 and 1993 when dividends were cut. They were back up to precut dividends by 2001. They ran into earnings problems at that time.)

The 5 year low, median and high median Price/Earnings per Share Ratios are 9.04, 10.62 and 11.89. The corresponding 10 year ratios are a bit higher at 9.15, 10.47 and 12.05. The current P/E Ratio is 7.93 based on a stock price of $37.90 and 2016 EPS estimate of $4.78. This stock price testing suggests that the stock price is cheap.

I get a Graham Price of $50.32. The 10 years low, median and high median Price/Graham Price Ratios are 0.80, 0.89 and 1.05. The current P/GP Ratio is 0.75. This stock price testing suggests that the stock price is cheap.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform Recommendations. Most of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 months stock price consensus is $48.63. This implies a total return of 33.98% with 28.28% from capital gains and 5.70% from dividends. The recommendations and the implied total return do not match up.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here

National Bank of Canada provides financial services to consumers, small and medium-sized enterprises, and large corporations & has branches in every province in Canada. It is also represented in the U.S. and Europe through its subsidiaries and alliances. Its web site is here National Bank of Canada.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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