Could National Australia Bank Ltd (ASX: NAB) shares be worth buying right now?
What has the NAB share price done recently?
It has been a crazy year for NAB shares. Before the global pandemic hurt the global share market, the NAB share price was above $27. It then dropped all the way below $14.
Since then it has recovered 65.7%, particularly after the good news relating to the COVID-19 vaccines.
Remember, share prices are forward looking so it may be a little while before we actually see a recovery of the NAB profit back to 2019 levels. NAB reported in its FY20 result that its cash earnings were down 36.6% to $3.71 billion compared to FY19.
The bank had a number of notable items including customer related remediation from the Hayne Royal Commission, payroll remediation, capitalised software policy changes and impairments of property related assets. Excluding those large notable items of around $1 billion (net), cash earnings were down by 25.9% to $4.73 billion. The statutory net profit came in at $2.56 billion.
What can we expect now?
In the release of NAB’s 2020 result, the bank shared with a number of thoughts about the outlook.
NAB is expecting 2020 to show a decline of Australian GDP of 4.7% over the year. The major bank is expect the recovery to be gradual, supported by stimulatory fiscal and monetary policy combined with the reopening of state borders. Those thoughts were before the recent Sydney outbreak of COVID-19 in the northern beaches.
The big bank is projecting that GDP will grow by 4.6% over 2021 and 2.9% in 2022. However, NAB said the outlook for the business sector remains highly uncertain and the pace of the recovery across different industries will be uneven. Unemployment is expected to peak at 8.1% in early 2021 before a recovery to 5.9% by the end of 2022.
Not exactly a forecast of booming growth. But if the level of bad debts that NAB suffers is lower than expected, that is indeed a major positive for the bank.
Are NAB shares a buy?
I’d probably rather own NAB shares over having cash, but the question is whether NAB is the best option to buy today. There might be a bit more upside to the recovery, but after that I don’t see how NAB can produce strong returns unless interest rates start rising again – which could take years.
In terms of a projected dividend, CommSec numbers suggest that NAB will be paying a fully franked dividend yield of 4.9% in FY22.
For me, there are plenty of other ASX dividend shares that I think could produce stronger total returns and better dividend growth like Magellan Financial Group Ltd (ASX: MFG) and Brickworks Limited (ASX: BKW).
