Investing in dividend-paying stocks is a popular strategy for those looking for regular income. These companies that offer dividends can create cash coming in regardless of the market. Even during volatility, investors can look forward to cash flow as the company eventually recovers.

But not all companies are created equal. That’s why today, we’re going to dig into a single dividend to see if its 3.3% dividend yield is worth buying.

The performance of the National Bank

Today, we’re going to enter National Bank of Canada (TSX: NA). In the third quarter of 2024, National Bank reported adjusted net income of $960 million, or $2.68 per share, up from $781 million, or $2.18 per share, in the same period last year . This growth was driven by strong performance in its wealth management and financial markets units.

Over the past five years, the National Bank has demonstrated resilience and steady growth. This includes a compound annual growth rate (CAGR) of earnings per share (EPS) of approximately 8%. The consistent performance underscores the bank’s ability to navigate diverse economic conditions.

The power of dividends

Earnings are great, but today we’re looking at dividends. So let’s dig into this further. National Bank shares have a solid history of dividend payments. With a current annual dividend of $4.40 per share, yielding about 3.3%. The banking has consistently increased its dividend over the years, reflecting its commitment to returning value to shareholders.

Additionally, National Bank’s stock’s dividend payout ratio stands at approximately 42.84%, thus indicating that it distributes less than half of its earnings. DIVIDENDS. This conservative payout ratio suggests that the dividend is well covered and sustainable.

Looking ahead

Analysts have set a 12-month average price target of $122.64 on National Bank shares, suggesting a potential downside of about 7.19% from the current price of $132.14. However, the bank’s strategic acquisition of Canadian Western Bank is expected to improve its domestic presence and diversify its revenue streams, potentially offsetting near-term price target concerns.

While the bank has demonstrated strong performance, potential investors should consider risks such as exposure to economic downturns, regulatory changes and competition in the banking sector. However, the National Bank’s diversified operations and prudent management practices contribute to mitigating these risks.

As of now, market analysts have mixed views on the National Bank’s stock, with some suggesting a hold due to its current valuation and potential decline. However, the bank’s solid fundamentals and growth prospects provide a counterbalance to these concerns.

Conclusion

With a trailing price-to-earnings (P/E) ratio of approximately 12.89, National Bank shares are reasonably valued compared to industry peers. This suggests that the stock is neither overvalued nor undervalued, providing a fair entry point for investors.

Compared to other major Canadian banks, National Bank’s dividend yield is competitive. Its focus on domestic growth and strategic acquisitions positions it well against peers with greater international exposure.

National Bank of Canada’s consistent revenue growth, sustainable dividend payout and strategic initiatives make it an attractive option for dividend-focused investors. There are inherent risks, of course. However, the bank’s strong fundamentals and prudent management suggest its 3.3% dividend yield is both attractive and sustainable.