Is the NAB (ASX:NAB) share price a buy for its 6.6% dividend yield?

NAB has a dividend yield of 6.6%. Does that make it a buy?

| More on:
happy woman looking at her laptop with notes of money coming out representing financial success and a rising share price and dividend yield

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The National Australia Bank Ltd (ASX: NAB) share price currently offers a projected grossed-up dividend yield of 6.6%. Does that make it a buy?

According to Commsec, NAB is expected to a pay an annual dividend of $1.32 per share in FY22. That translates to a grossed-up dividend yield of 6.6%. NAB is also expected to pay an annual dividend of $1.25 per share. That means the bank is expected to grow the FY22 dividend by 5.6%.

NAB's profit and dividends are recovering

A few months ago NAB reported its FY21 half-year result. Cash earnings were $3.34 billion – that was an increase of 94.8% year on year. Excluding large notable items in the first half of FY20, NAB cash earnings were up 35.1%.

The board decided to pay an interim dividend of $0.60 per share. That was the same as the entire FY20 dividend. NAB doubled its half-year dividend from $0.30 per share to the $0.60 per share payment. Not only did profit improve but NAB's common equity tier 1 (CET1) capital ratio improved to 12.37%.

With that excess capital, NAB decided at the end of July to announce it was going to buy back up to $2.5 billion of ordinary shares on the market. NAB said this is intended to manage its CET1 capital ratio towards a target range of 10.75% to 11.25%.

The NAB share price has risen by 11% since the announcement of the buyback.

The big four ASX bank explained that its stated target range reflects a balance between retaining a strong balance sheet through the cycle, supporting growth and recognising the importance of capital discipline to improve shareholder returns.

On 12 August 2021, NAB then announced it had generated $1.7 billion of cash earnings for the three months to 30 June 2021. This represented 10.3% growth of cash earnings year on year.

Ross McEwan, the NAB CEO, said:

Continued COVID-19 outbreaks and lockdowns are creating uncertainty and challenges for some of our customers. Through this we will support them while keeping our bank safe. However, we remain optimistic about the long-term outlook for Australia and New Zealand. The strong economic momentum leading into this period, ongoing government support and customers' relatively healthy starting positions give us confidence that once restrictions are eased, the economy will again bounce back.

Is the NAB share price a buy?

NAB recently announced the intended acquisition of Citigroup's Australian consumer business for a price of its net assets plus a premium of $250 million. At the time of the acquisition, that implied the required equity was $1.2 billion.

The deal price implied a multiple of 8x the Citigroup consumer business pro forma net profit after tax of $145 million for FY21.

It will be funded by NAB's existing balance sheet.

The broker Morgans thinks that NAB is a hold at the moment, with a price target of $27.50, noting the FY21 third quarter was assisted by a credit provision release of $112 million.

At the current NAB share price, it is valued at 14x the estimated earnings Morgans thinks the bank will generate in FY21.

Should you invest $1,000 in Elixir Energy Limited right now?

Before you buy Elixir Energy Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Elixir Energy Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Bank Shares

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

CBA shares hit a new $176 record high. Too late to buy?

What can stop this bank now?

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Is this the right time to invest in Westpac shares after the interest rate cut?

Should investors bank on rate cuts helping Westpac?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Bank Shares

How did ASX bank shares react to the RBA decision?

The Reserve Bank of Australia just reduced interest rates by 0.25% in the second cut for 2025.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Dividends from ASX 200 bank shares 'looking very stretched': expert

The banks have always been a favourite choice among ASX dividend investors. But the outlook ain't great.

Read more »

A pink piggybank sits in a pile of autumn leaves.
Bank Shares

How much higher can the CBA share price rise?

One fund manager has given their view on the biggest bank.

Read more »

A young man goes over his finances and investment portfolio at home.
Bank Shares

Why is the Macquarie share price sinking today?

Let's see what is causing its shares to start the week in the red.

Read more »

Woman with spyglass looking toward ocean at sunset.
Bank Shares

Here's the earnings forecast out to 2029 for NAB shares

Let’s look at what experts are predicting for the bank.

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

Here's what Westpac says the RBA will do with interest rates next week

The RBA is meeting on Tuesday. Will it cut rates? Let's find out.

Read more »