Is the National Australia Bank Ltd (ASX: NAB) share price a buy with all of the ongoing economic worries due to the coronavirus?
This morning the NAB share price is up 1% this morning, but it's still down over 40% since the initial falls began.
I can see why investors are thinking NAB could be an opportunity. The current NAB share price is as bad as the worst point of the GFC for NAB.
Plenty of analysts and economists have said this will be worse than the GFC for the big ASX banks. NAB won't be the only one hurt during this. Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) will also be affected.
Will the NAB dividend be cut?
I think it's obvious that the big bank dividends will be reduced, NAB included. But the current NAB share price will make future dividend yields look attractive.
The RBA interest rate is lower, meaning lower bank net interest margin (NIM) profits.
New Zealand has banned dividends, meaning NZ profit is quarantined from Australia for the time being.
APRA has said it expects banks to materially reduce their dividends.
NAB is clearly going to see a cashflow hit with it being more focused on business banking. Plenty of businesses are now shut. Payment holidays will mean less cashflow for the banks.
If I were on the board of NAB I'd want to cut the dividend by at least 50% so that the balance sheet remains strong. A cheap capital raising would be terrible for existing long-term shareholders.
Perhaps I'd consider a dividend cut as much as 75%. But a complete dividend suspension may be too hard for the retiree demographic to take.
Is the NAB share price a buy?
I believe that investors should ignore the dividend and focus on the fundamentals on the banks.
Coming into this, NAB and the other major banks were some of the best capitalised banks in the world. They're very well positioned to get through this compared to almost every other country.
Australia has fortunately not seen an outbreak anywhere near as bad as in Europe or the US. It may allow Australia to get back to normal life sooner than other western economies.
Considering NAB has already fallen so far, and taking into account all of the government & central bank support, I don't believe NAB will fall that much further. It could be a short-term buying opportunity.
But I don't personally want NAB or any of the other banks in my portfolio. I think there are better long-term investment opportunities.
