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The NAB share price is up 10% in 2020. Is it too late to buy?

Sebastian Bowen
NAB Shares

Is it too late to buy National Australia Bank Ltd (ASX: NAB) shares today?

The NAB share price continues its 2020 redemption and is up around 10% from the start of the year. NAB shares were going for under $25 on New Year’s Eve, but today the same shares will cost you over $27 – going for $27.24 at the time of writing.

So is the current NAB share price still a buy?

Why the NAB share price is trending up

NAB shares are known for their juicy dividend yield and exposure to the ‘business’ side of banking. But 2018 and 2019 were not kind years to NAB. The 2018 Royal Commission revealed many less-than-savoury practises that were going on at NAB and the company has been paying compensation to its customers ever since.

The three interest rate cuts that the Reserve Bank of Australia (RBA) delivered last year also didn’t help. Lower interest rates tend to cramp the ability of banks like NAB to command a decent ‘yield spread’ (the difference between what NAB pays its debtors and creditors).

But (as flagged earlier) NAB shares have been climbing this year. In my opinion, this comes down to general positive market sentiment and the hunt from investors that are seeking a decent yield in today’s market.

NAB also has a new CEO, Ross McEwan, whom the market seems to have great confidence in. Mr McEwan’s term as CEO only began in December last year, and I think the market is also responding to his new leadership.

Are NAB shares a buy at today’s prices?

Most investors who are interested in a ‘big four’ bank like NAB are in it for the dividends. And on current prices, NAB still offers a market-leading yield of 6.10%. If you include the value of NAB’s full franking credits, this yield rises to 8.71%.

Now, NAB might still trim this yield in 2020, as it did last year. But even if this eventuates, I still think the yield will remain at a very high level (and a lot higher than what you can expect from a NAB term deposit).

NAB might have some upside left in its recent run, but I don’t see banking conditions improving substantially in the next few years. Therefore, I can’t see NAB pushing much further from its current levels.

Foolish takeaway

For income investors today, I still think NAB is a reasonable buy as part of a diversified portfolio. But for anyone who’s not focused on maximising dividend income, I think there are better opportunities elsewhere!

The post The NAB share price is up 10% in 2020. Is it too late to buy? appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020