2 reasons to own NAB and Commonwealth Bank shares in 2017

I do not believe the current National Australia Bank Ltd. (ASX: NAB) share price and Commonwealth Bank of Australia (ASX: CBA) share price are bargain opportunities, but I’d be happy to keep holding on in 2017.

Indeed, at the current NAB and Commbank share prices, the market appears to have priced them according to their potential. Of the 16 analysts surveyed by The Wall Street Journal, the consensus is a ‘hold’ on CBA shares with a fair value price target 1.4% below today’s share price.

NAB shares are priced similarly, according to analysts. Today’s share price of $33.14 is 5% above what analysts believe the company’s stock is worth.

While you may read that and think it is time to sell out, I think there are more reasons to keep a hold of NAB and Commbank shares in 2017. Here are two of my favourite:

  1. Dividends. Even at today’s seemingly high share prices, NAB and Commbank are forecast to pay dividends equivalent to a yield of 5.7% and 5%, respectively. Both dividends also come with franking credits, meaning that they could be tax-effective for Australian residents. Contrast that with selling out of the shares for a capital gain, in which you are likely to incur a hefty tax bill.
  2. Modest growth. Commbank and NAB have grown their loan books very quickly over the past two decades. Spurred on by non-stop economic growth, house prices and a robust regulatory environment. While it’s hard to see the next 20 years producing the same rate of growth, both banks have opportunities to grow profits over time. Don’t get me wrong, there will be times when profits crash and dividends could be cut. But I think both banks offer decent growth over time.

Foolish Takeaway

If you have more than 10% of your portfolio in each of these banks or more than 30% of your entire portfolio in banking shares, I think that’s too much. However, if you have a well-diversified portfolio, I think NAB and Commbank shares are worthy of their ‘hold’ rating in 2017.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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