National Australia Bank’s 5.7% yield

Many investors think that when it comes to the major banks in Australia they are all pretty much the same. Here’s why they’re not.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since the start of the January 2013, the National Australia Bank (ASX: NAB) has outperformed its three major banking competitors, rising nearly 26%. As the first chart below shows, the “Big 4” have all outperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over this period, however NAB and Westpac Bank (ASX: WBC) by much more than the other two.



Interestingly, while the NAB still has the highest yield of the majors (the yields are all very tight), it also has the highest price-to-earnings (PE) multiple, which at first glance could suggest the NAB may struggle to continue its outperformance. In reality, things are a lot more complex than this. Banks are incredibly complicated businesses and determining their intrinsic value or even their relative value should be a lot more scientific than simply comparing published PE ratios.

Many investors mistakenly think that when it comes to the four major banks in Australia they are all pretty much the same. As the chart below shows, the ‘Big 4’ are not all created equally. Careful analysis and stock selection could have led to dramatically better returns over a 10-year holding period, depending on which bank you invested in.


Chart Source: Google Finance

Over the preceding 10 years (excluding dividends), had you invested in the Commonwealth Bank (ASX: CBA), your shares would be up 159%, in Westpac they would be up a still impressive 99%. If you had chosen to purchase shares in the ANZ Bank (ASX: ANZ) you would have underperformed the index with a return of 55%. Worst of all, had you spent the last 10 years owning NAB, you would actually have lost 2% of your money.

Foolish takeaway

Just because a business has done well in the past, it is no guarantee that it will continue to do so in the future. The four banks have all operated in the same environment and on a pretty level playing field but with dramatically differing shareholder returns. Management at two of these banks appear to have done a much better job at creating shareholder value than at the other two. As such management’s business acumen (or lack of) certainly should be considered by investors before any future investments in banking stocks.

Are you banking on Telstra? With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »