National Australia Bank Ltd (ASX: NAB) and Wesfarmers Ltd (ASX: WES) have proven to be two of ASX's best blue-chip stocks for income.
Unfortunately, that hasn't stopped them from falling 15% and 9%, respectively, over the past three months.
However, given official RBA interest rates are just 2%, it is possible that the selloff has been overdone.
Based on last year's dividends per share, often referred to as a trailing dividend yield, NAB currently has the largest yield of any company listed on the ASX with a market capitalisation of $30 billion or more.
NAB's 5.75% fully franked dividend yield becomes 8.2% when grossed-up for the tax-effective franking credits. Wesfarmers' gross yield of 6.9% isn't far behind.
Each stock also has a fantastic track record for increasing cash returns to shareholders.
However, one noticeable differentiation between the two blue-chip companies is their dividend growth outlook.
NAB's recent $5.5 billion capital raising and increased regulatory oversight from APRA has some analysts concerned that it may not be able to grow its dividends per share as quickly as it has historically.
Wesfarmers, on the other hand, could also have limitations on its payout over the next two to three years, but over the medium-term the prospect of increased dividends per share appears bright. A dominant Kmart, Coles and Bunnings Warehouse will see to this.
Which is the better dividend stock?
Given the possibility of increased profits over the next few years and its healthy cash balance, I would buy Wesfarmers shares for income before NAB. Not only do shareholders have the increased likelihood of rising dividend payouts over the medium-term, its share price could also be in for a rerating if the Coles and Bunnings Warehouse businesses continue their strong performance.
A better dividend stock than Wesfarmers
