National Australia Bank Ltd. (ASX: NAB) shares are forecast to pay a dividend yield of 7.1% fully franked in the next year. But is the dividend alone enough to justify a 'buy' rating at today's prices?
Here are three reasons why I'm holding off buying NAB shares, for now:
- Divestments.
NAB only recently divested its troubled UK banking subsidiary, Clydesdale and Yorkshire Bank, or CYB PLC (ASX: CYB), to public markets. In my opinion, the move is likely to be a net positive for NAB's share price over the long term. However, coupled together with its other recent divestments, I'd like to err on the side of caution and wait to scrutinise the next batch of periodic reports before jumping in.
- Headwinds.
Like its big four bank peers, such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), NAB may not experience the same level of growth that it has in recent times. The Australian property market is already large and growing modestly, but equally, NAB is now coming off a larger base. Together with a slowdown in resources, I think it'll pay to be conservative and wait to see what happens to credit quality and growth targets in the near-term.
- Diversification.
Having a diverse portfolio of shares is important, especially for a passive investor. And given the market's concentration towards banking shares, if you already have significant exposure to the property and financial sector (say, more than 20% of your portfolio), you should focus your efforts on other parts of the market or abroad. Although not specific to NAB, many Aussies have a significant amount of their wealth tied up in bank shares.
Foolish takeaway
NAB has made some promising moves in recent times, selling off non-core businesses and focusing its attention on its highest-yielding assets locally. However, I'm waiting for the dust to settle before running the ruler over NAB shares. In the meantime, there are plenty of other promising dividend shares on the ASX.
