National Bank of Canada

Sound bite for Twitter and StockTwits is: Buy for rising income/cap gains. The current stock price could be reasonable. It is testing from reasonable and below the median to reasonable and above the median. Because this is the smallest of the big Canadian Banks you might expect to do better than in the other banks, but this bank is riskier according to debt ratios. 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. I would expect dividends to be moderate to good with moderate dividend growth over the longer term. If I was looking for another bank, I would certainly consider this one. The only reason I do not own it is that I have enough bank stock with the 3 banks I own.

The dividend yield is good and the dividend growth is moderate. The current dividend is yield is 4.04% based on Dividends of $2.24 and a stock price of $55.38. The historical median dividend yield is 3.94% and 5 year median dividend yield is 4.16%. The 5 and 10 year dividend growth is at 10.2% and 8.5% per year over the past 5 and 10 years.

This stock tends to increase the dividend twice or more each year. The last increase was for 1.8% and it was done late last year. The dividend increase for 2016 was at 7.5% and dividends increase for this financial year ending in October 2017 is so far at 4.2%.

The Dividend Payout Ratio for the 2016 financial year was 65%. The 5 year median was much lower at 43%. The Dividend Payout Ratio range for Canadian banks is generally accepted at 40% to 55%. This bank sometimes goes higher than this range, but not often and for no longer than 1 year. The last time occurred in 2007.

The deposits (debt) as a ratio of the market cap are higher for this bank that the others I have reviewed at 8.64. This is compared to BMO at 8.59, BNS at 7.03, TD at 6.80 and Royal Bank at 6.09. (For this ratio lower is better.) The Debt Ratio is also the lowest at 1.05 compared to BMO at 1.07, BNS at 1.07, TD at 1.07and Royal Bank at 1.06. (For this ratio higher is better.) On the other hand, the dividend yield tends to be the highest on this bank compared to the other banks. This is the smallest of the big 6 banks of Canada.

The growth is EPS does not look good for the 5 and 10 year periods ending in the last financial year at negative 0.8% and 2.5% growth per year. However, if you look at the 5 year running averages for the past 5 and 10 years the growth is at 10.6% and 8% per year. This is because the EPS dropped by some 27% in 2016. The main reason seems to be an increase in provisions for credit losses and higher administration costs. EPS for 2017 is expected to be up by 53.5% over 2016 and 12% over 2015.

The Total Return for the past 5 and 10 years to the end of 2016 is 11.55% and 7.62% per year. The portion of this total return attributable to dividends is 1.81% and 2.45% per year. The portion of this total return attributable to capital gains is 9.74% and 5.18% per year.

The 5 year low, median and high median Price/Earnings per Share Ratios are 9.04, 10.62 and 12.21. The corresponding 10 year values are 9.15, 10.47 and 12.05. The corresponding historical values are 8.71, 10.05 and 11.88. The current P/E Ratio is 10.97 based on a current stock price of $55.38 and 2017 EPS of $5.05. This stock price testing suggests that the stock price is relatively reasonable and around the median.

I get a Graham Price of $56.93. The 10 year low, median and high median Price/Graham Price Ratios are 0.77, 0.88 and 1.03. The current P/GP Ratio is 0.97 based on a stock price of $55.38. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The 10 year median Price/Book Value per Share Ratio is 1.74. The current P/B Ratio is 1.94 a values some 11.8% higher. The current P/B Ratio is based on a stock price of $55.38 and Book Value per Share of $28.52. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get a current Dividend Yield of 4.04% based on a stock price of $55.38 and dividends of $2.24. The historical median dividend yield is 3.94%. This stock price testing suggests that the stock price is relatively reasonable and below the median.

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 is a Hold. The 12 months stock price consensus is $56.54. This implies a total return of 6.14% with 4.04% from dividends and 2.09% from capital gains.

Jonathan Ratner in the Financial Post talks about this bank making Citigroup's list of globally ranked stocks. This was a surprise that this bank made it and other big Canadian banks did not. Wayne Landers on Sports Perspective says that CSFB downgraded NA's shares from Neutral to Underperform, but raised the 12 month stock price from $51.00 to $54.00. See what analysts are saying about this bank at Stock Chase.

The last stock I wrote about was about was Bank of Nova Scotia (TSX-BNS, NYSE-BNS)... learn more . The next stock I will write about will be Transcontinental Inc. (TSX-TCL, OTC-TCLAF)... learn more on Wednesday, January 25, 2017 around 5 pm. Tomorrow on my other blog I will write about Buying Bonds... learn more on Tuesday, January 24, 2017 around 5 pm.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.