Is the National Australia Bank Ltd (ASX: NAB) share price a buy?
The big four ASX bank's share price has risen by 15% since the start of the year, when you add in the half-year dividend it has provided a return of around 20% including the franking credits.
NAB recently reported 7.1% cash profit growth in its half year result, so the share price growth could certainly be somewhat justified. Share prices generally follow earnings up or down.
The bank may also be a beneficiary from the RBA cutting interest rates and the regulator APRA deciding to reduce the interest buffer from a fixed 7% to a 2.5% buffer above the current interest rate borrowers pay. These are two positive changes in recent times.
NAB is passing on the full RBA cut to its borrowers, so it won't change the net interest margin (NIM), but it could benefit from its under-pressure borrowers being able to afford their loans more easily. Although it's questionable whether $50 or $100 a month would actually help that much. Some of NAB's borrowers are more than 90 days in arrears, so it would take a significant change to improve their situation.
The big banks of NAB, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have all had a number of wins since the Royal Commission's final report release.
NAB definitely needs more security that its borrowers won't become bad debts, but the APRA change could boost credit for the bank. With house prices drifting lower, credit growth has been sluggish. The main ways that NAB can grow profit is boosting its NIM and achieving credit growth, so any growth is useful.
Foolish takeaway
NAB could be the big bank to watch with new management, it's trading at 12x FY20's estimated earnings with a grossed-up dividend yield of 8.7% which seems more sustainable after the dividend reduction. Unless Australia goes through a recession, NAB could continue to be a solid dividend payer.
