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Why you should own this dividend share instead of NAB

I think National Storage REIT (ASX: NSR) is a better bet for income compared to National Australia Bank Ltd (ASX: NAB).

As their names suggest, they are both national businesses with Australia-wide networks of locations. Indeed, they both operate in New Zealand too.

The best thing about NAB is its grossed-up dividend yield of 11.5% in my opinion. Bank shares aren’t meant to act like a term deposit, but NAB has been paying 99 cents per share as a dividend every six months since mid-2014. If NAB can keep this up forever then it’s paying a very attractive return.

However, there are a number of things that may force NAB to reduce that payment including higher capital requirements in Australia and New Zealand, slowing credit growth, a dropping Australian property market leading to more bad debts, the Royal Commission remediation & legal costs and additional regulations.

Not a great short-term outlook for NAB.

I think it would be better to go for ASX shares that are demonstrating they can increase their operating earnings and reward shareholders with higher income payments each year. That’s why I’m attracted to National Storage. It’s the largest self-storage business in Australia and New Zealand with around 130 centres.

Australia’s high residential property prices has made it very attractive for people to consider storing items in a storage unit instead of owning or renting an extra bedroom just to put items in.

National Storage has been very effective at balancing its occupancy and the cost price of its units to customers to achieve the highest earnings it can each year. In FY18 it achieved occupancy of over 80% for its Australian portfolio, which is solid. Its underlying earnings per share (EPS) increased by 4.3% last year – this isn’t incredible, but it certainly beats inflation.

Foolish takeaway

Earnings growth is expected to be between 0% to 3% over FY19 and it currently has a trailing distribution yield of 5.3%. The starting yield isn’t as high, but I think National Storage can deliver better total returns over the next five years.

However, National Storage isn’t cheap so I can understand if you’re looking for ASX shares that may generate more growth for your portfolio.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended National Storage REIT. 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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