A Perfect 3% Dividend Yield? Only in the Safety of a Bank Stock Like This

A dividend yield of over 3% may not sound thrilling in a world where investors chase double-digit gains from speculative stocks. But when that dividend comes from a rock-solid bank with rising earnings, national expansion, and a history of steady increases? That’s a different story. That’s why today we’re looking at National Bank (TSX:NA), a bank stock offering slow, but steady, passive income.

National Bank

This bank just delivered another quarter that confirms why it remains one of the country’s most dependable stocks for income-seeking investors. Despite a slight dip in headline earnings, the bank posted underlying strength that reinforces its long-term appeal. And with a 3.3% dividend yield backed by growing profits and prudent management, it may just offer the perfect blend of safety and reward.

Let’s start with what investors really want to know: Is the dividend safe, and will it keep growing? For NA stock, the answer is yes on both counts. The dividend stock just increased its quarterly dividend to $1.18 per share, up 3.4% from the prior quarter. That brings the forward annual dividend to $4.72 per share, giving investors a 3.3% yield based on the current share price around $146. And with a payout ratio of just 42.2%, there’s plenty of room for future increases.

Into earnings

The bank’s recent earnings support this confidence. For the second quarter of 2025, National Bank reported adjusted net income of $1.2 billion, up 29% year over year. Adjusted earnings per share (EPS) rose 12% to $2.85. Those are not the kinds of numbers you see from a company under pressure. In fact, this performance includes costs associated with a major acquisition, its February purchase of Canadian Western Bank (CWB).

That deal was no small move. Valued at $6.8 billion, the CWB acquisition expands National Bank’s footprint across the country, especially in the West. While integration costs led to a short-term hit with reported EPS dropping to $2.17 from $2.54, the longer-term impact looks positive. Adjusted income before credit losses and taxes surged 45% from the year before, pointing to strong underlying momentum.

Considerations

Not every part of the bank’s business performed equally, of course. Personal and Commercial Banking saw net income plunge 58%, thanks to credit loss provisions and acquisition costs. But strip those out, and adjusted income actually ticked up 2%. Wealth Management and Financial Markets delivered standout growth, with income climbing 13% and 56%, respectively. That kind of segment diversification is another reason NA stock stands out.

So it’s not all sunshine and smooth sailing. The bank’s Common Equity Tier 1 ratio, a key measure of financial strength, dipped slightly to 13.4% from 13.7% last year. That’s still solid, but worth watching. Also, provisions for credit losses jumped, particularly due to the new CWB loans. If economic conditions deteriorate, further write-downs could pressure earnings.

Foolish takeaway

But that’s exactly why a stock like NA appeals to conservative investors. You’re not getting a speculative rocket ship. You’re getting a stable, dividend-paying bank with growing earnings, prudent risk management, and national ambitions. Even with rising interest rates and economic uncertainty, National Bank continues to grow. And it rewards shareholders along the way, and right now a $15,000 investment will bring in $481 in annual dividends!

So is a 3.3% dividend yield perfect? Maybe not for everyone. But in the context of a reliable, growing business with a track record of increasing payouts, it’s pretty close. Especially when it comes from a bank that just pulled off the largest acquisition in its history, and still had the strength to hike the dividend.

In a sea of volatility, National Bank offers something that’s increasingly rare: stability with upside. Investors looking for peace of mind and passive income might not need to look further.