National Australia Bank Ltd. (ASX: NAB) is the fourth-largest big bank, but it is probably my favourite amongst the major players.
2 reasons I like National Australia Bank
NAB is one of Australia's leaders in business banking, controlling around 21.5% of the market, according to APRA, with just 15.5% share of property lending. So while it is a significant lender to households, like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), it has a lesser reliance on residential property.
And if you have been reading the news or keeping tabs on the latest economic and housing data, NAB's lesser exposure to property could be a smart move.
Also, NAB has — and is — cleaning up its non-performing businesses. It divested its ownership of the UK's CYBG Plc (ASX: CYB), most of its life insurance business, sold its US agribusiness subsidiary Great Western Bancorp and since the Global Financial Crisis has sold billions of dollars of underperforming loans.
Now, finally, it can get on with running its two most profitable businesses: Its banking operations in Australia and New Zealand. Pleasingly, it appears to be doing a good job of it, too.
Some channel checking suggests that NAB is indeed a tough bank to get a loan from, which is promising in a rising housing market. Around 58% of its property lending is to homeowners, which is roughly in-line with its larger peers.
Are NAB shares a buy, hold or sell?
NAB shares offer an impressive dividend, forecast to be around 6.6% fully franked. That's a very compelling dividend in the current low-interest rate environment.
However, although NAB shares indeed appear quite cheap, I think there are better places to invest money right now. Given where we likely are in the property and economic cycles, investors should demand a meaningful margin of safety (the difference between 'share price' and 'share value') before buying in.
Until we are offered such an opportunity I have NAB shares firmly on my watchlist. But that's where they will remain for at least a little while longer.
