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National Australia Bank Ltd.’s 5.7% fully franked dividend yield

Despite a rally in the National Australia Bank Ltd. (ASX: NAB) share price, this big bank is offering a massive 5.7% fully franked dividend yield.

NAB Share Price

NAB share price, CBA share price

Source: Google Finance

As can be seen above, the NAB share price has been a perennial underperformer compared to the broader market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), and rival Commonwealth Bank of Australia (ASX: CBA).

NAB’s dividend yield

At today’s prices, NAB’s dividend yield is well ahead of other banks. The next largest dividend is paid by Westpac Banking Corp (ASX: WBC) — tipped to be 5.4%.

What’s more, NAB’s 5.8% fully franked dividend puts term deposits and savings accounts to shame. Currently, NAB is offering term deposit holders a 2.4% annual return!

However, dividends are riskier than term deposits. Indeed, while dividends are reliable they are not guaranteed. For example, if a company is not generating any profits, it is unlikely to pay a dividend.

Further, if the company wants to reinvest some profits back into a growth project or strengthen its balance sheet, it may put off or lower its dividend payments.

In the year ahead, some analysts expect NAB to lower its dividend payment. According to the consensus of analysts, NAB will lower its dividend from $1.98 to $1.94. Even still, that places the company on a yield of 5.7%.

Buy, hold or sell

NAB shares pay an enviable dividend. Nonetheless, it’s vital to balance the potential return of a investment with its risk. In my opinion, NAB shares are a little too expensive to justify an investment at today’s prices.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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