The National Australia Bank Ltd. (ASX: NAB) is one of Australia's leading providers of credit to households and businesses. In fact, both of those operations form the core that power the $80 billion bank.
However, recent gains in the NAB share price has likely left some shareholders questioning whether now is a good time to sell out.
Here are three reasons I think NAB shares are NOT a clear sell:
- Dividends. Depending who you ask, and the direction of the wind that day, NAB's dividend could be cut in the year ahead. However, consensus analyst estimates are pointing to only a minor dividend cut in 2017. Expected to pay a $1.94 per share dividend over the full year, NAB shares currently trade on a forecast dividend yield of 6.5% — fully franked. Even if it gets cut by more than that, it'll likely still pay a respectable dividend to shareholders.
- Valuation. NAB shares are not ridiculously priced. The price-earnings ratio (P/E) is a flawed way to value a business but at a P/E of 12x it trades below the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) average. Some investors may see this as a reasonable valuation to keep buying. NAB's price-to-book ratio (P/B) is slightly above the market average but arguably not enough to make it a clear sell.
- Operational improvements. Under the watch of CEO Andrew Thorburn, NAB has made some potentially crucial decisions to sell poorly performing or non-core businesses. Looking ahead, it can focus on its core assets in Australia and New Zealand, which could lead to improved returns over the long run, in my opinion.
Foolish Takeaway
Buying shares is the easy part. Being a 'good seller' is harder, in my opinion, with less commentary to guide your process for selling. For me, it comes down to a matter of gut feeling — which is probably wrong on so many levels — and what I expect the company to achieve in the next five years. If I truly am what I say I am (a long-term investor) I don't sell if a company suddenly falls or it reaches a 'price-target'. This is especially true if it pays dividends, to keep me company while I wait for the long-term thesis to pay out.
For example, just imagine all those Commonwealth Bank of Australia (ASX: CBA) shareholders who bought shares 20 years ago. Sure, they could have doubled their money a few short years later. But if they held on until today they will stand to receive a dividend yield equivalent to 70% of their original investment in dividends just in 2017.
That's long term investing.
