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Why I’m not buying into National Australia Bank Ltd’s 6.4% dividend yield

Is it just me or has National Australia Bank Ltd’s (ASX: NAB) grossed-up dividend yield become a lot more appealing in recent months?

Indeed, since March, the dividend yield of shares in Australia’s third largest bank has increased from just 5% fully franked to 6.4% fully franked – that’s 9.2% grossed up!

The big increase in yield has probably got something to do with NAB’s falling share price…

NAb dividendSource: Google Finance

…because as we know there are only two ways a dividend yield can increase so quickly:

  1. The company’s board of directors declare a bigger payout to shareholders, and/or
  2. The company’s share price falls dramatically

Since the board at NAB recently decided to keep its final dividend payout steady – taking the full year distribution to $1.98 – it is the falling share price which has boosted the dividend yield for NAB’s prospective investors.

Are NAB shares a buy?

The rise of NAB’s dividend yield, or fall in share price (depending on which way you look at it) has come despite the bank announcing a number of key operational achievements in 2015, such as the divestments of subsidiaries in both the US and the UK.

It also comes despite NAB announcing a strong profit rise in its most recent half-year reporting period.

As I recently wrote here, I think a great buying price for NAB shares could lie around $20. So given that NAB shares currently trade above $30 I won’t buy anytime soon. No matter how high the dividend yield rises.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned in the comments below. 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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