National Australia Bank Ltd (ASX: NAB) has a very large dividend yield, does that mean the share price is 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. It also operates the online-only Ubank.

Is The NAB Share Price A Buy For Its Dividend?

The NAB share price has been a pretty good performer for shareholders over 2019, its share price has risen 19% this year and don’t forget about the dividend payment earlier in the year.

Its return has been about the same as the ASX 200 (ASX: XJO) but with a better (fully franked) dividend yield.

NAB perhaps may have seen the most disruption over the past year from the Royal Commission compared to the other big banks of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).

NAB lost both its CEO and Chairman, but a new CEO could be what the bank needs to truly turn things around. But the Royal Commission has led to such large remediation costs that it forced NAB to reduce its dividend.

In this era of low interest rates it’s not surprising to see that NAB is gaining the attention of income seekers because of its fully franked dividend yield of 6.2%, or 9% once you add the franking credits.

The big question for the (new) dividend is whether it can be sustained or not, which relies on consistent earnings.

It’s certainly true that people will cut back on a lot of expenses to make sure they can keep paying their mortgage, but eventually it can get too much, particularly if they have too much debt.

There are probably more Royal Commission costs to be announced because the process isn’t complete. Time will if the Australian economy is going to pick up again after a number of moves by the government and the regulators to try to improve things.

Is It Time To Buy NAB Shares For The Dividend

Compared to other popular dividend shares, NAB is probably decent value as long as the economy doesn’t suffer a downturn. But due to that risk I think there are better options, such as the reliable shares in the free report below instead.

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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.