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Why you should hold off on buying this blue chip stock

For many investors and retirees, National Australia Bank (NAB) is an investment favourite. The company is seen as the ultimate blue-chip stock with consistent dividend payments and a firm share in the Australian banking market. However, below the surface, there are significant investment risks and reasons for caution before jumping in head-first.

Firstly, the bank has not really improved its top or bottom lines at all in the last five years. Growth has essentially been flat while the net interest margin has been steadily declining. Additionally, the company has not raised dividends whatsoever in the last four years. At the same time deposits have barely increased and the total average assets have actually fallen. Combine this with the fact that the Australian property market is most likely right at the top of the cycle and banks such as NAB have huge exposure. All of these factors mean that the bank is actually a much riskier investment than it may initially appear.

For the growth investor, NAB also appears to be a poor bet as the company’s total loans outstanding have not increased and its interest-earning assets are completely flat. While NAB has recently undertaken measures to restructure and improve its operations, it still seems likely that its earnings will only grow very modestly in the future. My recommendation, steer clear for the moment.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

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Motley Fool contributor mpinto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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