The National Australia Bank Ltd. (ASX: NAB) share price has continued to deliver for investors in 2019. For the year so far, NAB shares are up over 12% and are trading for $26.54 at the time of writing. This 12% return doesn't include the 86 cent per share interim dividend that was paid last week either, which would put total returns from NAB at around 15% and counting for the year.
Speaking of dividends, on current prices NAB is looking at a 6.86% yield, or 9.8% if one includes the value of full franking credits. This yield would quadruple what a NAB term deposit would pay you (which is around 1.9% at current rates) and certainly give you a solid income stream. So are NAB shares a buy for this healthy dividend yield?
What's behind NAB's share price rise?
Like the other 'Big Four' ASX banks, NAB's share price has benefited enormously this year as investors put the 2018 Royal Commission behind them. As the market now has a clear picture of the compensation scheme that NAB has implemented and also of the (relatively unchanged) regulatory landscape going forward, investors are rejoicing in the certainty.
Furthermore, with two interest rate cuts down and possibly more to go, big fully franked dividends have now become just that much more desirable. No doubt yield-seekers are also flocking to bank shares like NAB and Commonwealth Bank of Australia (ASX: CBA) to juice up their income portfolios.
What does the future hold for NAB?
NAB is currently in the process of finding a permanent replacement for former CEO Andrew Thorburn, who sensationally quit his post (along with Chairman Ken Henry) after stinging criticism from the Royal Commission earlier this year. Phil Chronican has been acting CEO ever since, but NAB is reportedly in the final stages of selecting a permanent replacement, at which time Mr Chronican will become the new Chairman.
On macro trends, NAB's yield is looking to be on a more sustainable footing after the interim dividend was cut from 99 cents per share to 88 cents earlier this year. This results in NAB having a current payout ratio of 77%, which is quite healthy for such a large dividend payer (in my opinion).
Foolish takeaway
If there is a major correction in business credit or the housing market, NAB margin's still will be squeezed and it may be forced to again trim its payout. But with such a large yield, any trims are unlikely to see a significant downgrade to NAB's status as a solid dividend payer. In my opinion, NAB is a good stock to hold going forward if you are an income investor or just appreciate a good dividend.
