When it comes to dividends, it's hard to ignore Woolworths Limited (ASX: WOW) and National Australia Bank Ltd (ASX: NAB).
Indeed, with official interest rates to stay low for some time, many investors no doubt have their crosshairs fixed on these two blue chip stocks.
So let's take a quick look at both companies, to see which is right for your portfolio.
Profitability
National Australia Bank Ltd achieved a return on equity of 13.96% in its most recent half-year reporting period (the six months to 31 March 2015), annualised. Return on equity is the amount of profit made on shareholders' money in any one year. The higher, the better.
On the other hand, Woolworths achieved a return on equity of 19.8% in its 2015 financial year. While not an entirely fair comparison of the two companies, Woolworths appears to be more profitable than NAB.
Dividend yield
At today's prices, the forecast dividend yield of shares in NAB and Woolworths is 6.5% and 5.5%, respectively. While both are fully franked and could come under pressure in years ahead, NAB clearly has a larger expected return.
Valuation
I've previously said both Woolworths and NAB shares could be compelling investments around $20 – so they're both currently outside the buy zone in my opinion.
However, at today's prices, Woolworths shares boast a price to book ratio of 2.82x. On the other hand, NAB shares have a price-book ratio of 1.47x.
The price-book ratio simply compares the market price of shares to the value of the company's assets. The lower the ratio, the better.
Should you buy Woolworths and NAB shares?
If we put the two companies side-by-side and used the simple relative valuation metrics above, it would tell us NAB shares are a better buy for income. However, after taking a deeper look at both companies, I'd rather hold Woolworths shares in my portfolio – at the right price.
But until they get down to around $20, I won't buy any more.
