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WARNING: This blue-chip stock is offering a dangerous 8.6% dividend

With interest rates stuck at 2.5% and inflation at 2.9%, finding an escape to the low rates on offer from term deposits and savings accounts is more important than ever.

Fortunately, Australian companies in the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO) are offering fully franked dividend yields far greater than any return from term deposits.

Woolworths Limited (ASX: WOW), BHP Billiton Limited (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA) are just some examples of the many ASX stocks which offer good dividend yields. So it’s no wonder their share prices are up 9.6%, 17.6% and 17%, respectively, in the past year.

But having the biggest dividend yield does not automatically make a company a good buying opportunity. For example, in the next 12 months, National Australia Bank Ltd. (ASX: NAB) is expected to offer the biggest dividend yield of any ASX company with a market capitalisation greater than $10 billion. According to Morningstar’s analysts’ consensus forecasts, the bank could pay a dividend up to $2.01 per share fully franked.

That equates to a dividend of 6% fully franked or 8.6% grossed-up!

So why does it trade so cheap and on such a big dividend yield?

The answer: It is a serial underperformer. Over the past 10 years, its share price is up just 8% compared to a return of 54% from the market index. Its peers such as Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) are up 95% and 83%, respectively.

However, investors hoping for a turnaround in NAB’s stock shouldn’t hold their breath. With billions of dollars in bad commercial property loans and a struggling UK business, it’s unlikely it will prove to be a sound investment in coming years.

Buy this BIG dividend stock before NAB

Before hitting the buy button on NAB shares, I urge you to consider some of the other great ASX dividend stocks on offer right now. For example, our top analyst recently identified one ASX stock with a 7% grossed-up dividend yield and exceptional growth prospects which trades on a P/E ratio of just 11! Best of all: it's your FREE. Just click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

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

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