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National Australia Bank Ltd.’s 6.6% fully franked dividend yield

Credit: NAB

A recent fall in the National Australia Bank Ltd. (ASX: NAB) share price has boosted its fully franked dividend yield.

Currently, NAB shares are yielding an impressive dividend of 6.6% fully franked. That compares to the Australia and New Zealand Banking Group (ASX: ANZ) dividend of 5.7% and Woolworths Limited’s (ASX: WOW) 3%.

However, after we include the value of those tax-effective franking credits, NAB’s dividend yield blows out to an even more impressive 9.4% grossed up.

Historically, the sharemarket has returned slightly less than 10% per year, on average. A savvy investor might look at NAB’s dividend and think to themselves, ‘9.4%, that’s almost a market-beating return from the dividend alone!’

And you would be right.

Over the long term, dividends have played an enormous part in the returns from the sharemarket.

However, it is also important to consider the risks and potential downside in any investment. A recent slowdown in housing, increasing bank competition, rising interest rates and slower economic growth will each have implications for NAB’s business.

Buy, Hold or Sell

If I was going to buy shares in any of Australia’s Big Four banks at today’s prices, NAB would be at the top of my list. However, in the sharemarket, there is no rush to do anything.

As someone once told me, it is the shares we do not buy that are more likely to make us money.

What’s more, there are thousands of shares on local and international markets which are equally worthy of our consideration.

For example, last week, I bought shares of ING Groep, the owner of ING Direct. While it doesn’t offer a huge dividend yield like NAB (it pays 4.3%), it offers international diversification and growth potential.

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Motley Fool Contributor Owen Raszkiewicz owns ING Groep NV shares. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of National Australia Bank Limited. 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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