The National Australia Bank Ltd (ASX: NAB) share price currently offers a grossed-up dividend yield of 11.4%.
That's certainly an enticing yield isn't it? You could get a market-beating return from the yield alone if NAB keeps paying the same $1.98 per share annual dividend year after year.
In FY18 its dividend payout ratio was 94.1%, or 82.6% excluding the restructuring-related costs and customer-related remediation. Either way it's a high dividend payout ratio, but it is under 100% which is a good sign it could be sustainable.
The Royal Commission has unearthed a lot of aspects to the banking world of NAB, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) that were unsavoury. It has been a painful lesson for NAB, which cost $360 million in FY18.
However, despite all that, NAB reached a 10.2% CET1 ratio and the bank said it has a clear path to achieving APRA's unquestionably strong CET1 target of 10.5% by January 2020.
NAB revenue continues to grow, it was up 0.5% in FY18, which was important to offset a flat net interest margin (NIM) of 1.85%, the bank levy and growing home lending competition.
A key part to NAB's short-term profit plans is the reduction of its workforce which recognises the lessening need of bank branches. In FY18 NAB let go of 1,900 full time employees and it has an overall reduction target of 6,000 employees by FY20, which largely explains the $755 million restructuring costs NAB incurred last year.
The reduction of the workforce was probably needed, I can't remember the last time I stepped into a branch of my bank, but it's painful for the employees losing their jobs. NAB is expecting cumulative cost savings of at least $1 billion by 30 September 2020, it achieved $320 million of cost savings in FY18 alone.
Foolish takeaway
It's trading at under 11x FY19's estimated earnings, so it certainly looks attractive on paper. Whilst I'm not going to buy NAB shares yet I can understand why retiree or value investors would be interested at this price level. It all depends on how Australia's economy does over the next couple of years.
