NAB, Westpac and Macquarie Group Ltd: Should you BUY?

For a select few, the Australian banking sector has proven to be extremely lucrative. None more so than for the major banks, who hold an estimated 84% of the local mortgage market.

Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and, to an extent, Macquarie Group Ltd (ASX: MQG) have all been beneficiaries from strong growth in the domestic finance market over the past decade.

Macquarie Group

As Australia’s premier investment bank, Macquarie is a diversified earnings powerhouse. Both in terms of geographical location and services. Whilst mortgages represent a viable growth area, it has a number of other specialist areas in which it’ll seek growth.

With over 65% of revenues derived from overseas, investors are expecting Macquarie to benefit from increasing confidence in global markets. It is forecast to pay a 4.9% dividend with 40% franking over the next 12 months.

National Australia Bank

With the biggest dividend yield (forecast to be approximately 6%) and lowest price to book ratio and price to earnings ratio of the big banks, you’d be easily mistaken for thinking NAB is a bargain.

Over the past 10 years, whilst the other big banks have been rapidly growing cash earnings, NAB has been recouping losses from its failed UK expansion. In addition its Australian operations continue to lag its peers. Whilst it controls a huge share of business banking and agribusiness, it remains to be seen if NAB can turn its share price around.

Westpac Bank

Probably the most conservative of the big banks, Westpac has been very active in rewarding shareholders with strong annual dividend payments. However paying out a larger dividend is usually a sign of waning growth prospects. With shares changing hands on a trailing price to earnings ratio of 15.3 and PEG ratio of 2.61, Westpac is far from a good buy. Don’t be fooled by its 5.2% dividend yield.

The ASX’s BEST dividend stock

Whilst I feel Macquarie could be a good long-term buy at current prices, both NAB and Westpac appear expensive relative to their growth prospects. However there is one ASX stock which pays a 7% grossed-up dividend yield and has eight years of consecutive growth under its belt.

Trading cheap it looks very tempting at current prices. Our top analyst recently branded it, "The Motley Fool's Top Dividend Stock for 2014". You can get the code and name of this top stock for FREE! Discover The Motley Fool's #1 dividend pick in our newly updated report. Simply click here for your FREE copy right now.?

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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