The Company in a Nutshell
- NA has a slight exposure to the mortgage market with 70% of its business coming from other segments.
- The bank is pursuing a successful growth by acquisition strategy.
- NA can move faster than the larger banks and is more flexible due to its smaller size.
Date Reviewed | 8/30/2024 |
Company Name | National Bank of Canada |
Symbol | NA.TO |
Sector | Financials |
Industry | Banks - Diversified |
Beta | 1.126 |
PRO Rating | 5 |
Dividend Safety | 4 |
Business Model
National Bank of Canada (the Bank) operates as an integrated financial group. The Bank operates through four segments: Personal and Commercial, Wealth Management, Financial Markets, and U.S. Specialty Finance and International (USSF&I). Its Personal and Commercial segment includes banking, financing, and investing services offered to individuals, advisors, and businesses as well as insurance operations. Its Wealth Management segment includes investment solutions, trust services, banking services, lending services, and other wealth management solutions offered through internal and third-party distribution networks. Its Financial Markets segment includes corporate banking and investment banking and financial solutions for large and mid-size corporations, public sector organizations, and institutional investors. Its USSF&I segment includes the specialty finance services provided by its subsidiaries, Credigy Ltd. and Advanced Bank of Asia Limited.
Current price | 128.05 |
ROE | 16.40 % |
ROIC | 0.00 % |
Shareholder Yield | 0.40 % |
5-Yr Total Return | 138.85 % |
1-Yr Total Return | 39.65 % |
Next Earnings Date | 12-04-24 |
Latest Quarter Information
What the CEO said:
“Our strong financial results for the third quarter reflect our diversified earnings mix and solid credit profile as well as disciplined execution across the Bank,” said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. “With our prudent approach to capital, credit, and costs, we remain well-positioned in a complex macro environment and we look forward to the growth opportunities ahead.”
What we say:
08-28-2024, It feels like National Bank is playing in another leauge these days. The bank reported EPS up 24%, driven by strong performance across all segments. P&C was up 15%, driven by growth in loan and deposit volumes while PCLs was up only $4M vs last year. Wealth management +19% driven by growth in fee-based revenues and net interest income. Financial markets +55%, driven by growth in global markets revenues and in corporate and investment banking revenues. U.S. Specialty & Intl +23%, driven by a strong performance of both Credigy and ABA Bank. NA also expects to close the acquisition of CWB by the end of 2025.
Investment Thesis
NA has targeted capital markets and wealth management to support its growth. Private Banking 1859 has become a serious player in that arena. The bank even opened private banking branches in Western Canada to capture additional growth. The bank is now showing a great diversification across its various business segments (with 50% of its revenue coming outside of classic savings & loans activities). Since NA is heavily concentrated in Quebec, it concluded deals to provide credit to investment and insurance firms under the Power Corp. (POW). In 2024, National Bank announced the acquisition of Canadian Western Bank (CWB.TO) for $5B. The deal is not closed yet (it is expected to close only at the end of 2025). If it happens, it would boost NA’s presence in Western Canada on top of opening the door to more cross-selling opportunities amongst this new book of clients (CWB doesn’t offer a service such as Private Banking 1859).
The stock has outperformed the Big 5 for the past decade as it has shown strong results. National Bank has been more flexible and proactive in many growth areas such as capital markets and wealth management. Currently, NA is seeking additional growth vectors by investing in emerging markets such as Cambodia (ABA bank) and the US through Credigy. We wonder if it can achieve more success than BNS on international grounds.
This is one of the rare Canadian stocks having a near-perfect dividend triangle.
Dividend Triangle
5-Yr Rev. Growth | 7.30 % |
5-Yr EPS Growth | 9.55 % |
5-Yr Div Growth | 10.30 % |
Potential Risks
National Bank is still highly dependent on Quebec’s economy (about half of its revenue comes from this province). As a hyper-regional bank, NA is more vulnerable to local economic events. To date, this has not affected the bank significantly, but we advise to keep track of its provisions for credit losses. Recessions and rising interest rates could also affect the bank’s debt portfolio. Financial markets’ revenues are also highly volatile. We often mention that financial markets could save or wreck the day. NA may experience a bad quarter if the stock market becomes bearish. Overall, the bank has performed very well, but it usually takes a little more risk to identify growth vectors (such as the ABA bank investment and capital markets). So far it has paid off, but it does not mean it will always be this way in the future. Keep in mind that investments like the one in Cambodia are unpredictable and could shift very quickly.
Debt/Equity | 2.25 |
Financial Debt to EBITDA (TTM) | 6.40 |
Current Ratio (Quarterly) | 0.00 |
Credit Score | 75 |
Dividend Growth Perspective
The bank has been one of the most generous over the past 5 years, which is impressive considering the company had to take a break in its increases between 2008 and 2010 due to the financial crisis.It did the same in 2020-2021 in waiting for regulations to be lifted. This finally happened at the end of 2021 and the bank rewarded shareholders’ patience with a dividend increase of 23% (to $0.87/share). They have since returned to the traditional biannual dividend increase. In Q2 of 2023, NA increased its dividend by 5.2%. We expected a similar increase for Q4 and we were not disappointed with a 4% increase (from $1.02/share to $1.06/share). The bank offered another dividend increase in Q2 of 2024 of 4% (now paying $1.10/share) and exhibits one of the lowest payout ratios and the highest dividend growth rate among its peers.
Dividend ($) | 4.4 |
Dividend Yield Fwd | 3.45 % |
Dividend Frequency | Quarterly |
Average 5-Yr Yield | 4.00 % |
Payout Ratio (%) | 42.05 |
Cash Payout Ratio (%) | -288.50 |
DGR 1-Yr | 7.85 |
DGR 3-Yr | 11.90 |
DGR 5-Yr | 10.30 |
DGR Streak | 13 |
Chowder Score | 13.75 |
Next DVD PMT | 11-01-24 |
Valuation
Recent Annual Dividend Payment | $ 4.40 |
Expected Dividend Growth Rate Years 1-10 | 5.00% |
Expected Terminal Dividend Growth Rate | 6.00% |
Discount Rate | 10.00% |
Discount Rate (Horizontal) | |||
Margin of Safety | 9.00% | 10.00% | 11.00% |
20% Premium | $ 171.60 | $ 129.12 | $ 103.61 |
10% Premium | $ 157.30 | $ 118.36 | $ 94.97 |
Intrinsic Value | $ 143.00 | $ 107.60 | $ 86.34 |
10% Discount | $ 128.70 | $ 96.84 | $ 77.71 |
20% Discount | $ 114.40 | $ 86.08 | $ 69.07 |
Video Tutorial: How to Read the Stock Cards DDM Valuation
Market Cap | 43 B |
PE Ratio | 12.45 |
Fwd PE | 11.90 |
Price to Book Ratio | 1.70 |
DDM Valuation | 107.6 |
Average 5-Yr PE | 11.04 |
Value Score | 74 |
- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.