After recently reporting its quarterly update, is the National Australia Bank Ltd. (ASX: NAB) share price a buy for the projected grossed-up dividend yield of 7% in 2022?
NAB is one of the big four ASX banks along with Commonwealth Bank of Australia (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).
Based on the dividend estimate on CommSec, the big four bank is expected to pay an annual dividend of $1.42 in FY22, which translates into the projected yield of 7%.
But there's more to considering a business, even an ASX bank, than just the dividend. Other factors including the attractiveness of the valuation, the growth momentum and business plans should be taken into account.
Share prices are constantly moving, but investors get a real insight into a business when it releases a quarterly or half-yearly result.
NAB recently released its performance for the three months to 31 December 2021.
FY22 first quarter performance
The big four ASX bank said that it made $1.8 billion of statutory net profit, with $1.8 billion of cash earnings. Almost $2 billion of net profit in three months would be a significant number for most Aussie businesses. But how much growth did that represent?
NAB said that its cash earnings grew by 9.1% compared to the prior corresponding period. Before tax and credit impairment charges, the cash earnings rose 6%. Compared to the FY21 second half quarterly average, cash earnings rose 12%. Earnings growth can be a key driver of the NAB share price over time.
A key part of the profit growth was that revenue increased 8%, reflecting higher volumes across housing and business lending, increased fees and commissions and a recovery in markets & treasury income.
NAB's net interest margin (NIM) declined by 5 basis points to 1.64%, which included competitive pressures and a negative impact from the housing lending mix.
One of the things that the bank was pleased to tell investors about was its net promoter score (NPS) – a measure of customer satisfaction – which continued to improve and was up to +1 in the latest quarter, ranking it first of the big four ASX banks. The business NPS was 0, ranking it second of the major banks.
NAB said that its credit impairment charge was a write-back of $35 million, reflecting the impact of higher house prices and improving asset quality across both housing and business lending with continued low specific charges. The ratio of loans being more than 90 days past due continued to decline.
Is the NAB share price a buy?
There is a mixture of views on NAB at the moment. Some brokers think it's a buy, like Macquarie and UBS. However, others, like Morgans and Citi, currently have a 'hold' rating on the bank.
Citi thinks that the NAB performance is improving and it will be able to achieve stronger profitability in the coming periods, but the price target is just $30.50. Morgans is wary about the potential of a future penalty from AUSTRAC.
Macquarie thinks that NAB is growing its lending volumes nicely and winning market position. That's why it has raised its price target to $32.50. The UBS price target is only $30.50, but noted that NAB did better than the broker was expecting in this quarter.
