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Should you buy these high yield dividend shares?

The Australian share market is one of the most generous in the world when it comes to dividends.

Two of the more generous shares on the local market are listed below. Should you buy them for their high yields?

G8 Education Ltd (ASX: GEM)

This childcare centre operator’s shares provide a fully franked annualised 8.2% dividend. This is one of the biggest yields you’ll find on the local market, but I’m very doubtful that it will be maintained for much longer. G8 Education’s shares have come under significant selling pressure this year after the company reported a surprising deterioration in occupancy levels due to new supply outstripping new demand. And while new government funding is expected to lead to more children entering childcare, I am concerned that this could just encourage even more supply. Because of this, I would suggest that investors stay clear of G8 Education until it provides an update on its performance and trading conditions in the childcare industry.

National Australia Bank Ltd (ASX: NAB)

This banking giant’s shares currently offer investors an attractive trailing fully franked 7.6% dividend. Though, I think the first thing for investors to note here is that when a dividend yield widens to such a degree as this, it usually means the market is doubtful that its dividend will be maintained at the current level for much longer. So I wouldn’t necessarily bet on National Australia Bank continuing to pay its $1.98 cents per share dividend in FY 2019, especially given its relatively high payout ratio. In fact, Morgan Stanley has tipped the bank to cut its dividend to $1.74 per share next year, which equates to a forward yield of 6.7%. While this is still very generous and could be worth considering, there are even greater yields on offer in the sector through Westpac Banking Corp (ASX: WBC), which I don’t believe will need to cut its dividend any time soon.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Scott Phillips.

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