The National Australia Bank Ltd (ASX: NAB) share price has been one of many S&P/ASX 200 Index (INDEXASX: XJO) shares falling lower in the past month. Since 15 February, shares in the Aussie bank have fallen 15% lower to $23.24.
But if there's one thing the ASX banking sector has going for it, it's dividend yield. NAB shares are currently yielding 7.14% which I think is pretty handy right now. So, should you add NAB to your portfolio this week?
Why NAB shares have fallen lower
There are a couple of reasons why NAB shares are under pressure right now. The first one is the global outbreak of the coronavirus, or COVID-19, which has spooked investors. Beyond a public health level, markets are concerned about the far-reaching economic impacts of the outbreak.
China has been in an effective shutdown in an effort to contain the virus spread which has disrupted the global economy. Manufacturing, retail and events companies are under pressure and could struggle if the outbreak really picks up steam. In terms of NAB shares, a stalled economy coupled with record-high debt levels could impact defaults and therefore, bank earnings and impairments.
The second factor hitting the ASX banks this week is the Reserve Bank of Australia's decision to cut rates. The central bank lowered the official cash rate by 25 basis points to 0.50%. The new record low might be good for homeowners, but it is bad for bank profitability. When interest rates fall, and the banks pass on the cuts, that puts their net interest margins (NIM) at risk.
Does the 7% dividend yield make NAB worth buying?
Those two factors above shouldn't be ignored when deciding whether or not to buy NAB shares. However, if you're of the view that the virus shutdown will pass, NAB could in the buy zone. Lower rates can also mean borrowing, which could boost NAB's earnings in terms of volume rather than price.
The group's shares are down more than 15% since mid-February and are trading at a price-to-earnings (P/E) ratio of just 13.4 times. However, that's a risky bet right now and I'll be waiting for a clearer picture of the coronavirus' economic impacts before diving in.
