Banks In The Great White North: National Bank Of Canada

Jan. 7.13 | About: National Bank (NTIOF)

This is the second installment of my analysis on banks from Canada. For my previous analysis on BMO, please see the link here.

The Bank

National Bank of Canada (OTCPK:NTIOF) is the 6th largest bank in Canada, lagging behind Royal Bank (NYSE:RY), Toronto-Dominion Bank (NYSE:TD), Bank of Nova Scotia (NYSE:BNS), Bank of Montreal (NYSE:BMO), and Canadian Imperial Bank of Commerce (NYSE:CM). With a market capitalization of $12.4 billion CDN, it is less than half the market capitalization of CM at $30.1 billion CDN.

National Bank of Canada provides integrated financial services to various institutional, commercial and retail clients. Its 3 major lines of businesses are:

  • Personal and Commercial Banking
  • Wealth Management
  • Financial Markets

Dividend and Yield

National Bank of Canada has a target dividend payout ratio of 40% to 50%. From the bank's 2012 annual report:

For 2012, the Bank declared a total of $498 million in the form of dividends to common shareholders, representing 39% of available net income, excluding specified items (2011: 39%). The Bank is slightly below its target dividend payout range of 40% to 50%, but confidence is maintained regarding the Bank's growth and ability to increase earnings while being prudent about the regulatory capital changes and the uncertain economic environment.

With a forward dividend of CDN $3.32 (~$3.36 USD) per share, it yields 4.28% at the closing price of $77.52 CDN ($78.48 USD). This compares favorably to RY (3.93%), TD (3.67%) and BNS (3.96%).

Dividend Growth

National Bank of Canada has maintained a dividend of $2.48 CDN through 2007-2010, with an increase announced in late 2010. Since then, dividends have been increasing every 2 quarters or so, with the latest increase to $3.32 CDN per year on December 6, 2012.

Year Dividend (CDN) YOY Dividend Growth
2008 $2.48 N/A
2009 $2.48 0%
2010 $2.48 0%
2011 $2.74 10.48%
2012 $3.08 12.41%
Click to enlarge

Historical Yield

As with other Canadian banks, National Bank of Canada also suffered a significant price drop between 2008-2009. The lower dividend in 2009 was not due to the dividend cut, but rather the strengthening of USD versus CDN.

Year Price Range (USD) Dividend Yield Range
2008 20.19-56.00 2.35 4.20%-11.64%
2009 24.66-61.46 2.18 3.55%-8.84%
2010 51.29-71.14 2.40 3.37%-4.68%
2011 60.00-85.00 2.80 3.29%-4.67%
2012

68.70-81.45

3.10

3.81%-4.51%
Click to enlarge

Below is the exchange rate used to calculate the dividend in USD, obtained for each payout date. The exchange rate listed in the table below is comma-separated, for each payout date during that year.

Year Exchange Rate (CDN to USD)
2008 1.0059364500, 0.9815617636, 0.9751160075, 0.8235004341
2009 0.8235004341, 0.8428032428, 0.9279019973, 0.9219989176
2010 0.9384097003, 0.9830908442, 0.9712509484, 0.9860093963
2011 1.0079761414, 1.0590976720, 1.0421903932, 0.9809176619
2012 1.0030748739, 1.0163874974, 0.9982233380, 1.0027967759
Click to enlarge

EPS Growth

EPS has been steadily growing.

Year EPS (CAD) YOY EPS Growth

2008

4.67 N/A
2009 4.94 5.78%
2010 5.95 20.45%
2011 6.85 15.13%
2012 7.86 14.74%
2013 8.14 (estimate) 3.56% (estimate)
Click to enlarge

Payout Ratio

The payout ratio is maintained between 40-50%, as per the bank's target. Given that the payout ratio for 2013 (estimate) is at the low range of the payout target, there could still be further dividend increases should the EPS surpass the current estimate.

Year Dividend EPS Payout Ratio

2008

2.48 4.67 53.1%
2009 2.48 4.94 50.2%
2010 2.48 5.95 41.7%
2011 2.74 6.85 40.0%
2012 3.08 7.86 39.2%
2013 3.32 (estimate) 8.14 (estimate) 40.8% (estimate)
Click to enlarge

Technical Analysis

National Bank of Canada has been on a strong uptrend since mid 2012. It has an RSI of 64.14, which is nearing overbought levels. Its 30 week MA is sitting at 74.10 and is trending up as well. The stock is approaching near term resistance at around 80. There seems to be some support around the 72-75 range.

Conclusion

The relatively high yield coupled with a low payout ratio makes National Bank of Canada an interesting investment option. Even throughout the market downturn in 2008-2009, the EPS trend was still positive. Although the yield is attractive when compared to the range of historical yields, the stock is nearing its 52 week high and its RSI is nearing overbought levels as well. I would wait for a minor pull-back before jumping in.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.