NAB dividend cut likely: Morgans

Morgans has become the latest to question the sustainability of NAB’s dividend.

Morgan Stanley has also openly questioned the current payouts from NAB. Picture: AAP Image/Mick Tsikas.

National Australia Bank will likely be forced to cut its dividend as revenue pressure ramps up at the major banks, according to Morgans analyst Azib Khan.

The latest query on the sustainability of NAB’s dividend comes on the heels of a steady third-quarter result yesterday and follows a June call from Credit Suisse that tagged a dividend reduction as a “sensible” play. Morgan Stanley has also openly questioned the current payouts from the bank.

In a note to investors, Morgans’ Mr Khan trimmed his dividend forecast after reducing earnings per share estimates by 0.8 to 1.6 per cent due to margin pressures.

“As it is looking increasingly difficult for NAB to reduce its dividend payout ratio into its target range of 70-75 per cent over the ‘medium term’ by keeping dividends flat, we are now forecasting a cut to dividend per share in fiscal 2017,” he said.

The revised expectations show dividends unchanged at $1.98 a share in fiscal 2016 and falling by 10c in fiscal 2017.

The group still retained its $26.40 target price on the group’s shares, but reduced its recommendation to ‘hold’ given recent share price strength.

Morgans was the only major name to downgrade NAB’s rating following the result, with most leaving their views unchanged despite minor reductions in earnings expectations.

At Credit Suisse, NAB has recently replaced Westpac as its top pick in the sector, with its analysts tagging the third-quarter result as the best among the sector.

“In a reporting season characterised by revenue-driven misses, this update appeared to be more resilient than the peers,” Credit Suisse said.

It has a $30 a share target and an ‘outperform’ rating on NAB shares.

Meanwhile, CLSA’s Brian Johnson also kept an ‘outperform’ rating on the stock as he saw it outpacing its peers despite the growing threat of dilutive raisings.

“[Mr Johnson] is firmly of the view that NAB, and the other banks, are still short capital and the risk of dilutive capital raisings/ dividend cuts is rising,” CLSA said in a note, adding that “if forced” NAB was the group’s pick in the sector.

At 2.30pm (AEST), NAB shares traded down 1.1 per cent at $26.91, making it the worst performer of the big four in the session.