The National Australia Bank Ltd (ASX: NAB) share price offers a fully franked dividend yield of 8%, is it a buy?
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending.
Is The NAB Share Price A Buy For The Big Dividend Yield?
Out of the big four banks, NAB has the biggest yield. When you include franking credits the yield actually increases to above 10%, making it one of the largest yields on the ASX.
Sometimes a high yield can actually be a yield trap. Meaning, a dividend cut could be just around the corner and that dividend yield is nowhere near as attractive as it appears at first glance.
NAB does have form for paying its $1.98 per share dividend consistently. It has paid the same annual dividend per share every year since 2014. All it takes is for the company to maintain its level of profitability and that dividend could keep being churned out every year.
But, it’s not as simple as that. NAB has lost its CEO and will soon be without its Chairman after the bank’s leadership faced particular naming and shaming for their performances in the Royal Commission.
It is also one of a number of banks that may face a class action in the coming years due to the practices that were revealed in the Royal Commission.
Still, it’s getting harder to beat the market these days, so it might be an idea to own NAB for the income it throws off every year. But, with Australian house prices declining each month there’s a fair chance that NAB’s bad debts will increase if home owners or property investors can’t repay their mortgage.
Is NAB A Buy?
With NAB paying out most of its statutory earnings as a dividend each year, there is little wriggle room for the bank if earnings fall. The dividend could be cut too. For that reason, I would rather get my dividends from one of the very reliable businesses mentioned in the free report below.
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