3 Reasons Why National Bank of Canada Is a Steal at $40 Per Share

At just $40 per share, National Bank of Canada (TSX:NA) is an absolute steal. Here are three reasons why you should be a long-term buyer of it today.

| More on:
The Motley Fool

National Bank of Canada (TSX:NA), the sixth-largest bank in Canada in terms of total assets, has watched its stock fall over 18% in 2015, but I think it is an absolute steal at just $40 today. Let’s take a closer look at three of the primary reasons why I think the stock will head higher from here and why you should be a long-term buyer of it today.

1. Its strong financial performance could support a much higher share price

On December 2, National Bank announced very strong earnings results for its fiscal year ended on October 31, 2015. Here’s a summary of 10 of the most notable statistics from fiscal 2015 compared with fiscal 2014:

  1. Adjusted net income increased 5.6% to $1.68 billion
  2. Adjusted earnings per share increased 4.9% to $4.70
  3. Total revenue on a taxable equivalent basis increased 6.1% to $5.98 billion
  4. Non-interest income increased 5.3% to $3.01 billion
  5. Net interest income increased 6.9% to $2.97 billion
  6. Total assets increased 5.2% to $216.09 billion
  7. Total deposits increased 7.5% to $128.83 billion
  8. Total loans and acceptances increased 8.5% to $115.24 billion
  9. Total assets under administration and management increased 3.7% to $358.14 billion
  10. Book value per share increased 9.7% to $28.26

2. Its stock trades at very inexpensive valuations

At today’s levels, National Bank’s stock trades at just 8.6 times fiscal 2015’s adjusted earnings per share of $4.70, only 8.5 times fiscal 2016’s estimated earnings per share of $4.76, and a mere 8 times fiscal 2017’s estimated earnings per share of $5.05, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 10.1 and the industry average multiple of 12.9.

With the multiples above and its estimated 7.1% long-term earnings growth rate in mind, I think National Bank’s stock could consistently trade at a fair multiple of at least 10, which would place its shares upwards of $47 by the conclusion of fiscal 2016 and upwards of $50 by the conclusion of fiscal 2017, representing upside of more than 16% and 23%, respectively, from current levels.

3. It has a high and safe yield with an active streak of annual increases

National Bank pays a quarterly dividend of $0.54 per share, or $2.16 per share annually, which gives its stock a 5.35% yield, and this is more than double the industry average yield of 2.3%.

Investors should also make two very important notes. First, the company has increased its annual dividend payment for five consecutive years, and the 3.8% increase it announced on December 2 puts it on pace for 2016 to mark the sixth consecutive year with an increase. Second, it has a target dividend-payout ratio of 40-50% of net income, so its consistent growth should allow this streak to continue for the next several years.

Does National Bank of Canada belong in your portfolio?

National Bank of Canada is an absolute steal at just $40 per share, so all Foolish investors should strongly consider making it a core holding today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

grow money, wealth build
Dividend Stocks

5 “Forever” Dividend Stocks to Build Your Wealth

If you're looking for dividend stocks you can happily hold forever, consider these five. Some with more growth in returns…

Read more »

The sun sets behind a power source
Dividend Stocks

3 Reasons Why Canadian Utilities Is an Ideal Canadian Dividend Stock

Canadian Utilities (TSX:CU) stock is well known as a dividend star, but why? Let's get into three reasons why it's…

Read more »

Payday ringed on a calendar
Dividend Stocks

Cash Kings: 3 TSX Stocks That Pay Monthly

These stocks are rewarding shareholders with regular monthly dividends and high yields, making them compelling investments for monthly cash.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Up 13%, Killam REIT Looks Like It Has More Room to Run

Killam REIT (TSX:KMP.UN) has seen shares climb 13% since market bottom, but come down recently after 2023 earnings.

Read more »

Volatile market, stock volatility
Dividend Stocks

Alimentation Couche-Tard Stock: Why I’d Buy the Dip

Alimentation Couche-Tard Inc (TSX:ATD) stock has experienced some turbulence, but has a good M&A strategy.

Read more »

financial freedom sign
Dividend Stocks

The Dividend Dream: 23% Returns to Fuel Your Income Dreams

If you want growth and dividend income, consider this dividend stock that continues to rise higher after October lows.

Read more »

railroad
Dividend Stocks

Here’s Why CNR Stock Is a No-Brainer Value Stock

Investors in Canadian National Railway (TSX:CNR) stock have had a great year, and here's why that trajectory can continue.

Read more »

protect, safe, trust
Dividend Stocks

RBC Stock: Defensive Bank for Safe Dividends and Returns

Royal Bank of Canada (TSX:RY) is the kind of blue-chip stock that investors can buy and forget.

Read more »