NAB’s 5.9% dividend yield

National Australia Bank Ltd (ASX: NAB) is Australia’s premier business bank. It is currently forecast to pay the biggest dividend of any ASX company with a market capitalisation over $15 billion.

Compared to its big bank rivals, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA), NAB also trades on the lowest price to book ratio and trailing price to earnings ratio – currently 1.82 and 13.3, respectively.

So why do NAB shares appear to be such a good buy, yet continue to trend sideways? I’ve put it down to three main reasons:

1. Its exposure to the United Kingdom. One of management’s most important strategic priorities is to manage the international portfolio. This includes the £3.3 billion in commercial property.

2. The Australian division has been underperforming its peers for a number of years. It remains the least profitable of the big four across a number of important valuation metrics such as return on equity, cost to income and net interest margin.

3. A poor history of increasing shareholder wealth. Over the past 10 years, NAB’s share price has increased just 9.57% whilst ANZ, Westpac and CBA have grown 80%, 101% and 144% respectively.

You’d be forgiven for believing NAB shares trade cheaply (given its years of underperformance) but it still does not represent a standout buy.

In the USA Wells Fargo & Co (NYSE: WFC), which boasts a market capitalisation of $268 billion and the title of the country’s fourth-biggest bank by assets, has a return on assets of 1.57% and net interest margin of 3.20%. NAB has a market capitalisation of $71 billion, return on assets of 1.26% and net interest margin of 1.94% yet trades on a higher price to book and price to earnings.

But is the dividend worth it?

With a forecast 5.9% fully franked dividend yield, NAB certainly presents itself as a compelling investment for long-term investors. Although NAB’s profitability has been slipping for years, it remains our dominant business bank and could be a potential turnaround story.

However I would like to see a lower share price or a divestment away from its UK businesses before buying in. While NAB's management try to do it, I'm not going to sit on hands and wait. In fact, there's one ASX stock with a 7% grossed up dividend yield I'm considering buying today! Our top analyst has dubbed it, "The Motley Fool's Top Dividend stock of 2014". I suggest you read and consider it before buying NAB shares. It's yours FREE! Simply click here for your FREE copy right now.?

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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