NAB dividend cut ‘inevitable’: UBS

UBS has added its voice to a growing number warning on NAB’s dividend sustainability.

UBS said a flat dividend would likely push NAB’s payout ratio above 80 per cent. Picture: AAP/Mick Tsikas.

A dividend cut from National Australia Bank is “inevitable”, UBS analysts have surmised.

The conclusion, which was made after further analysis of NAB’s recent quarterly report, adds to the growing list of brokers and investment banks warning on the sustainability of NAB’s payouts to shareholders.

Among those detailing concerns in recent months were Credit Suisse and Morgan Stanley, while broker Morgans weighed in this week, saying a dividend reduction would be “sensible”.

UBS analysts – headed by Jonathan Mott – went a step further, however, warning they could not see how NAB could maintain its dividend at current levels.

“NAB has stated that it believes it should be able to maintain its 99c per share dividend and sees a ‘credible path’ to reducing its payout back into its 70-75 per cent target range,” Mr Mott said.

“Given the ongoing low rate environment, regulatory changes, competitive forces and normalising BDD [bad and doubtful debts] off a very low base, we believe this is unrealistic.”

UBS said a flat dividend would likely push its payout ratio above 80 per cent even in spite of its decision to aid margins by not passing on the latest RBA rate cut in full.

Mr Mott expects the dividend to move to 90c – from 99c – from the first half of 2017, with the prospect it could even undershoot as low as 85c.

The report also warned a “rebasing” of the dividend could be seen as early as its full year 2016 result in November.