Mostly Local and Still Profitable

NA - National BankNational Bank is a leading financial institution, ranking amongst the six largest commercial banks in Canada.

By geography, Quebec is its largest market accounting for 58% of its total revenues. The bank also has an international presence in the US, Europe, and other countries. Its business can be divided into – Personal and commercial banking which accounts for more than 40% of National Bank’s income, followed by financial markets (28%), wealth management (21%), and US specialty finance and international (10%).

National Bank offers a wide range of banking and financial services, including corporate and investment banking, securities brokerage, insurance, wealth and retirement management. It has over $260 billion in assets as of January 2019.

National Bank has an experience of more than 150 years and is known for its client-centric integrated financial services with branches in almost every province of Canada. To improve client satisfaction and increase efficiency, the bank is also deploying new digital services and advancing the automation of operations.

Investment Data

Revenue Growth & Market Exposure

National Bank caters to individual customers, small and medium-sized enterprises and large corporations. It offers specialized services in the international markets as well. It is one of Canada’s largest integrated financial service providers, with convenient self-banking channels, over 400 branches, 900 banking machines across Canada and a large scale digital presence. Over the years, National Bank has earned the trust of its clients to address all of their financial needs. National Bank is the most preferred financial service provider for its clients, especially the SMEs.

National Bank is favorably placed to leverage from its leading position in Quebec and increase its market presence across Canada. Its personal and commercial banking has a strong presence in central and other markets in the country, and meets the financial needs of close to 2.6 million individuals and 137,000 businesses. Growth across the P&C segment is driven by strong loan and deposit growth and positive operating leverage.

National Bank’s expertise in specialized markets should also help it expand in the growing commercial markets. The bank’s digital investments are focused on expanding its existing retail customer relationships as well as to attract new ones. Its wealth management business is also firmly established across Canada and should gain from a favorable business mix. Disciplined portfolio acquisition strategy at Credigy and strong growth in ABA Bank should act as tailwinds for its US Specialty Finance & International business.

Dividends

National Bank has shown a dividend growth of more than 4% CAGR over the last decade and has a reasonable payout ratio of 43%. It has a proven history of attractive dividend yield and consistent annual dividend growth.

National Bank has grown its dividend for nine consecutive years. The bank raised its dividends twice in 2018, registering an effective 7% growth on an annual basis. It has a current dividend yield of 4.2% and also resumed share repurchases in 2017. The bank has set a medium term target to achieve a 5%-10% growth in EPS and maintain a payout ratio of 40%-50%.

The bank maintains a CET 1 ratio at 11.5%. It has successfully grown its revenues and income by 7%+ and 10%+ CAGR, respectively, over the last five years. Its ABA Bank acquisition (in 2016) has started to bear fruits and has become the fourth largest bank in Cambodia. National Bank is focusing on driving growth organically and driving customer satisfaction across all its segments. Strong business environment and economic growth in the US and Canada should drive its top line growth.

National Bank’s leading franchise in Quebec, diversified business mix, and sound balance sheet should support its dividend growth in the mid to high single digit range going forward.

Competition

The Canadian personal and commercial banking segment is highly competitive. National Bank competes with other leading Canadian banks like TD Bank TSE:NA, Royal Bank TSE:RY, Scotiabank TSE:BNS, Canadian Imperial Bank of Commerce TSE:CM and Bank of Montreal TSE:BMO. Bank of Montreal is the eighth largest bank in North America by assets, while CIBC caters to 11 million individual, small business, commercial, corporate and institutional clients in Canada, the U.S. and around the world. Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAmbassadorAchieverAristocratKingGraph
RYRoyal BankFinancial ServicesBanks62109.25157.4412.5112.608.733.8448.1144.2010.13NONOYESNO1
TDTD BankFinancial ServicesBanks6577.06105.0012.2512.606.293.8447.0642.9612.10NONOYESNO1
BNSScotia BankFinancial ServicesBanks6675.5692.2211.3612.606.654.7654.1443.6010.27NONOYESNO1
BMOBank of MontrealFinancial ServicesBanks56101.0848.5810.7212.609.434.0843.6944.127.12NONOYESNO1
CMCIBCFinancial ServicesBanks69115.4638.6110.1312.6011.404.9950.5345.769.32NONOYESNO1
NANational BankFinancial ServicesBanks6370.6923.6211.4212.606.193.8543.9442.7210.00NONOYESNO1
CWBCanadian Western BankFinancial ServicesBanks5635.893.1311.9912.602.993.1237.4641.128.28NONOYESNO1
FNFirst National Financial CorporationFinancial ServicesBanks5544.052.6416.7812.602.624.3172.50121.907.47NONONONO1
LBLaurentian BankFinancial ServicesBanks6446.361.9711.5712.604.015.6965.8442.6410.60NOYESYESNO1
EQBEquitable Group Inc.Financial ServicesBanks56111.881.8710.0712.6011.111.2512.6041.409.26NONOYESNO1

Bottom Line

National Bank should benefit from favorable economic conditions in its core Quebec market given its strong reputation of a “super-regional Canadian bank”. As a full-service bank, National Bank offers a broad spectrum of financial products in its core Quebec market and other services in selected international markets. Its strong customer focus, digital initiatives, and other organic growth strategies should help it maintain a leading position in the markets it serves. National Bank should continue to grow on the back of strong acquisitions and overall growth across its segments.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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