I think 2018 was a year to forget for the big four banks. Both the National Australia Bank Ltd (ASX: NAB) share price and the Westpac Banking Corp (ASX: WBC) share price thoroughly underperformed the market average with sizeable declines.
And while I think both shares are now trading at attractive levels and their respective outlooks are improving, I would suggest investors only buy one of them in order to maintain a diversified portfolio.
Which is better value?
At present Westpac's shares are changing hands at 10.9x earnings and 1.3x book value, whereas NAB's shares are trading at 11.2x earnings and just over 1.2x book value.
This means both shares are changing hands on lower than historical average multiples right now, arguably making them both equally attractive.
What about dividends?
One positive from the underperformance of the banks over the last 12 months is the fact that their shares now offer some of the juiciest dividends on the local share market.
Westpac's shares currently provide a trailing fully franked 7.4% dividend and NAB's shares provide a massive trailing fully franked 8.2% dividend.
Though, before you get too excited about the latter yield, it is worth noting that there is speculation that NAB will be joining fellow dividend favourite Telstra Corporation Ltd (ASX: TLS) by cutting its dividend this year.
According to notes released by Morgan Stanley and Macquarie in November, their analysts have pencilled in dividend cuts to $1.68 and $1.84 per share, respectively, in FY 2019. This compares to a dividend of $1.98 per share for the last four years.
Based on these estimates, NAB's shares could provide a dividend yield of 6.9% and 7.6% over the next 12 months.
Which bank should you buy?
Based on its current valuation and dividend yield, I think Westpac is the better bank to buy out of the two.
However, I can't imagine there will be too much of a difference between the way their shares perform this year, unless NAB cuts its dividend more than the market expects.
