The Yosida method was introduced in (Quarteroni et al., to appear) for the numerical approximation of the incompressible unsteady Navier-Stokes equations. From the algebraic viewpoint, it can be regarded as an inexact factorization of the matrix arising from the space and time discretization of the problem. However, its differential interpretation resides on an elliptic stabilization of the continuity equation through the Yosida regularization of the Laplacian (see (Brezis, 1983, Ciarlet and Lions, 1991)). The motivation of this method as well as an extensive numerical validation were given in (Quarteroni et al., to appear).In this paper we carry out the analysis of this scheme. In particular, we consider a first-order time advancing unsplit method. In the case of the Stokes problem, we prove unconditional stability and moreover that the splitting error introduced by the Yosida scheme does not affect the overall accuracy of the solution, which remains linear with respect to the time step. Some numerical experiments, for both the Stokes and Navier-Stokes equations, are presented in order to substantiate our theoretical results.