It can be understandably difficult for investors trying to decide which of the four major banks to invest in, with seemingly little separating the growth potential of each. Despite their similarities, there are in fact numerous differences which distinguish the investment merits of each of these four blue-chip stocks.
One of the reasons bank shares have been so popular in recent years has been the desire of many investors to own stocks that pay high, fully franked dividends. On this score, the banks and Telstra Corporation Ltd (ASX: TLS) have been particularly popular.
As it currently stands National Australia Bank Ltd. (ASX: NAB) appears to be the most appealing of the "Big 4" based on both this year's dividend yield and also next year's. According to data supplied by Morningstar, NAB is forecast to yield 5.65% in financial year (FY) 2014 and a tempting 6.1% in FY 2015.
NAB's FY 2015 forecast yield is a significant 0.7% above next in line Australia and New Zealand Banking Group (ASX: ANZ) which is forecast to yield 5.1% in FY 2014 and 5.4% in FY 2015.
The remaining two majors, Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) are forecast to yield 5.1%/5.3% and 5%/5.2% respectively in FY 2014/FY 2015.
Foolish takeaway
In addition to NAB's healthy yield premium, the stock also trades on the lowest price-to-earnings (PE) ratio of its peer group. With a forecast FY 2015 PE of 12.6x, the stock is below ANZ's 12.9x, Commonwealth's 14.25x and Westpac's 14.5x.
NAB also has the added potential to free up capital by offloading its UK assets – Clydesdale Bank and Yorkshire Bank. A sale of these assets could see NAB undertake capital management initiatives such as paying a special dividend or returning capital to shareholders. It could even lead the bank to attempt to consolidate the Australian banking sector further through the acquisition of a second-tier competitor.
