Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) shares are known for their big dividends and relative safety.
Combined, they make up a huge 12% of the entire S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), yet they likely account for a much larger proportion of investors' portfolios given their income characteristics.
Westpac
Westpac is Australia's second largest bank, with a market capitalisation of $95 billion. It is one of Australia's leading credit card providers and controls 25% of the lucrative Australian housing market. It has the largest exposure to investor property loans.
Westpac has been the most aggressive of the big four banks in its push towards a multi-branded portfolio. Its subsidiaries include Bank of Melbourne, St. George and BankSA.
Westpac shares trade on a trailing 6.4% fully franked dividend yield.
NAB
NAB is Australia's top business bank with 22% share of the market, according to APRA's latest banking statistics. It is Australia's third-largest bank by market capitalisation.
While NAB's history is somewhat blemished by alleged misconduct and write-downs of loans, under its current CEO Andrew Thorburn the bank has taken strides to rid itself of non-core assets and foreign subsidiaries. The challenge for the bank now is to focus on building out its balance sheet in a sustainable manner.
Given its relative undervaluation, NAB shares trade on a trailing dividend yield of 7.8% fully franked.
Better Buy
Likely a result of its poor track record for share price appreciation, NAB shares are the cheaper of the two banks.
Nonetheless, it could provide an opportunity for investors. If the bank can prove its days of aggressive expansion, underperforming assets and misconduct are behind it, shareholders may stand to benefit from a re-rating by analysts. The extra dividend is a bonus.
Foolish takeaway
If I had to choose one of these two big banks to add to my portfolio today, it'd be NAB. The 11% gross dividend is nothing short of impressive and the shares are cheaper than its peers. Having said that, however, I think shares in both banks currently trade above their fair value. Therefore, I'm not a buyer of either bank today and am instead looking to add other shares to my portfolio.