Based on its most recent dividend payments, at $29.80, National Australia Bank Ltd (ASX: NAB) shares currently change hands on a trailing fully franked dividend yield 6.71%.
After accounting for those delightful tax-effective franking credits, Australia's third largest bank boasts a comparable grossed-up yield of 9.58%.
While it's important to remind yourself of the relative riskiness of investing in the share market, NAB shares are offering a return that is roughly equivalent to four times that of a 12-month term deposit.
Source: nab.com.au
Now, a major concern of any shareholder should be the sustainability of their company's dividend yield. After all, unlike term deposits, the amount of money a company pays as dividends will vary significantly over time.
Pleasingly though, upon recently announcing its intention to raise $5.5 billion of capital from investors, the bank stated: "it is NAB's intention to maintain a fully franked dividend of 99 cps in the September 2015 half year."
That's despite the fact it'll have 8% more shares on offer following the capital raising, making it more costly to pay the same dividend to all shareholders.
Is NAB a buy?
NAB has proven to be a good dividend stock over recent years, but that's all. Indeed, it has clearly underperformed its peers in terms of capital growth over the past decade.
And although I think NAB will successfully transform itself into a leading domestic institution under the reign of CEO Andrew Thorburn, I'm hesitant to buy shares in the bank just yet.
NAB shares aren't cheap in my opinion and when coupled with the backdrop of a slowing economy, the full downside of its profits over the medium term may not yet be evident in its market price.
I've said it before, but I think a good price to pay for NAB shares would be around $20.
