So far in 2015, shares of National Australia Bank Ltd (ASX: NAB) have been on a great run, rising 14%.
This comes despite a raft of negative press engulfing Australia's third biggest bank. Insider trading, a parliamentary inquiry into potentially unconscionable conduct of its UK subsidiaries and ongoing speculation of further provisions, have been regular features in news feeds.
However it seems the search for yield is more important.
Indeed, it's easy to see the allure of NAB's 5.2% fully franked dividend when the Reserve Bank of Australia's official cash rate is just 2.25% and term deposits are offering a measly 2.5%.
But new NAB shareholders could've bitten off more than they can chew.
Especially when we consider the headwinds which lay ahead for the domestic economy, increased competition amongst lenders and lofty share prices; investors should avoid NAB shares.
As an alternative, supermarket giant Woolworths Limited (ASX: WOW) looks a better investment today. Here are three reasons why.
- Strong track record – Unlike NAB, Woolies has an impeccable track record of earnings and dividend growth.
- Defensive earnings base – Woolworths sells non-discretionary items which people will need regardless of whether the economy is experiencing a boom or bust. NAB's earnings will rise and fall dramatically depending on market conditions.
- Value in its share price – Whilst NAB shares have appreciated considerably in recent months (in spite of the fact they were already expensive), Woolworths is down 17% in the past year alone.
Despite boasting a dividend yield of 'just' 4.7% versus NAB's 5.2%, Woolworths' shares look to be a much better long-term investment at today's prices.
