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2 min read: 3 reasons National Australia Bank Ltd. shares should be on your watchlist

Credit: NAB

The National Australia Bank Ltd. (ASX: NAB) share price is down 7.5% in a month, but it’s worth keeping an eye on this big bank.

Here are three reasons I have National Australia Bank shares on my watchlist in 2017.

Dividends. Dividends. Dividends.

NAB shares are forecast to pay dividends equivalent to 6.4% fully franked, according to Morningstar. If you are eligible for those tax-effective franking credits, the ‘gross’ dividend yield is an enviable 9.14%. Try getting that at the ban…never mind.

It is important to note, however, that dividends are not guaranteed. Sure, they are consistent. But they are not as reliable as interest on a term deposit or money in a savings account.

For example, in the year ahead, some analysts expect NAB to slightly trim its dividend.

Relative safety.

You can lose 100% of your investment in the sharemarket, make no mistake. However, NAB is one of Australia’s biggest and most important banks.

On the one hand, that means NAB has a greater regulatory burden from APRA and the Government. However, it also means NAB is a relatively safer investment idea than some other companies listed on the ASX.

For example, the Government’s recent proposal to introduce a ‘Big Bank Tax’ is, in part, designed to ensure the major four banks are paying for the added level of safety, with the Government perceived to be their ‘insurance policy’. Mind you, deposit holders or mortgagees are likely to be passed the tax.

Valuation.

Relative to its peers Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA); the valuation of National Australia Bank shares appears the most compelling.

While I wouldn’t go so far as to say that it is a buy at today’s prices, I think it is the closest to its fair value of all the banks.

What’s more, amongst the Big Four banks NAB has the least exposure to mortgages. I think Australia’s property market is due for a period of consolidation, so its reduced exposure comforts me.

Buy, Hold or Sell NAB shares

NAB shares could be a great source of dividend income. However, I’d like a more compelling entry point before buying in. Nonetheless, it remains firmly on my ASX share watchlist.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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