On Wednesday the National Australia Bank Ltd (ASX: NAB) share price tumbled to a 52-week low of $26.28.
This means the banking giant's shares have fallen almost 13% over the last three months.
Are National Australia Bank's shares in the buy zone?
While I do see a lot of value in National Australia Bank's shares at these levels, I'm not entirely convinced that now is the time to pounce on them.
Especially after a bearish broker note out of Morgan Stanley on Wednesday. That note revealed that the broker has slapped an underweight (sell) rating on the bank's shares and slashed its price target to just $25.50.
This implies potential downside of a further 3% for its shares. So, while it does look attractive now, investors may want to hold off an investment for the time being and wait to see if the negative sentiment drags its shares down even lower.
Why is Morgan Stanley bearish on National Australia Bank?
While the broker is bearish on the sector in general due to its belief that the bank super cycle is over, it is particularly concerned about National Australia Bank's ability to continue paying its $1.98 per share dividend.
Morgan Stanley has suggested that its business mix and high payout ratio could force the bank to cut its dividend down to $1.74 per share in FY 2019. That would mean a 12% cut to its current dividend.
As we have seen with Telstra Corporation Ltd (ASX: TLS) recently, when the market gets a whiff of a potential dividend cut, a company's shares invariably come under pressure until a cut is disproven.
Based on Morgan Stanley's FY 2019 dividend estimate of $1.74 per share, National Australia Bank's shares are trading with a 6.6% yield at present.
This is notably lower than the trailing fully franked 7% dividend on offer from Westpac Banking Corp (ASX: WBC) shares currently, which the broker expects to be sustained in FY 2019.
In light of this, I would sooner buy Westpac's shares until National Australia Bank's shares have fallen to a level that reflects a dividend cut or the bank confirms that it will maintain its dividend.
