As an ASX 200 bank stock, National Australia Bank Ltd (ASX: NAB) shares have always been sought out by income investors. NAB, like most of its banking peers, has been paying out generous dividends to its shareholders for decades. As such, it’s often a go-to stock for passive income seekers on the ASX.
Looking at NAB stock today, you can see that the bank offers a pretty compelling trailing dividend yield of 5.23%. That comes fully franked as well (as is typical of NAB’s dividends). So right off the bat, income investors might be pretty pleased with what they see from NAB shares in February 2024.
Yes, NAB has a starting dividend yield of 5.23% today. However, if you’re thinking about buying NAB shares today, consider this. If you picked up NAB shares around eight months ago, your dividend yield would have been far higher.
How much higher? Well, around 21%. NAB stock might be trading with a yield of 5.23% today. But back in early June 2023, investors were looking at a starting yield of 6.65%.
Why has the dividend yield on NAB shares collapsed for new buyers?
You might be wondering how that is possible. After all, 2023 was a great year for NAB income investors, with the bank increasing its annual dividends per share to $1.67, up from $1.51 per share in 2022.
However, a dividend yield is a function of two different inputs, and only one of them is the actual dividends per share that a company pays. The other is the company’s share price. And the NAB share price’s recent performance explains why its dividend yield has dropped by more than 20% over the past eight months.
Today, the NAB share price is riding relatively high at $32.06 at the time of writing. That’s only a whisker away from the bank’s current 52-week high of $32.60 that we saw last week.
Yet back in early June, NAB hit a new 52-week low of just $25.10 a share. For starters, this means that NAB shares have appreciated by almost 30% over the past eight months. But it has also meant that NAB’s dividend yield has plunged by a similar amount.
If NAB doles out $1.61 in dividends per share and its share price is at $25.10, then the dividend yield will come out at 6.65%. However, if the bank rises to $32.06 a share (which it has), and that raw dividend per share amount hasn’t changed, then NAB’s new dividend yield would be 5.23%. Which is the metric we are seeing today.
So NAB shareholders have been victims of their own success to a certain degree. Due to the company’s sharp rise in valuation, anyone buying NAB today is getting a rougher deal in dividend terms than they were eight months ago.
But for anyone who did buy eight months ago, you’d still be sitting on a 6.65% yield (assuming NAB keeps forking out income at least at the same rate going forward).
The post Buying NAB shares? Here’s why your dividend yield is down 20% in 8 months appeared first on The Motley Fool Australia.
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More reading
- Got $15,000? How I’d invest for a bulletproof ASX passive-income portfolio
- Breaking! NAB shares (and CBA) just hit a new 52-week high
- How much would I need to invest in NAB shares now for $1,000 a month in passive income?
- I’m buying cheap ASX shares to build my wealth in 2024 and beyond
- Lifetime income: 3 ASX dividend stocks I’m planning to never sell
Motley Fool contributor Sebastian Bowen has positions in National Australia Bank. 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 Scott Phillips.
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