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Why National Australia Bank Ltd (ASX:NAB) is my favourite big bank

Credit: NAB

Nearly everyone has some sort of exposure to the big bank shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

If you’re invested in an Australian-focused index fund like Vanguard Australian Share ETF (ASX: VAS) you have big bank exposure. Large-cap focused LICs like Argo Investments Limited (ASX: ARG) give exposure. You are probably invested in banks through your superannuation too if you’re invested in an Australian shares fund option.

I personally believe most Australians have far too much exposure to the big banks, just for diversification’s sake alone, not even considering the questionable near-term growth outlook.

They are all exposed to the same risks and the same opportunities, so it makes little sense to have a quarter or more of your portfolio allocated there.

However, I can understand if some investors still want to have some a bit of exposure to the banks. So, if I had to pick one it would be NAB.

NAB seems to be fairing a bit better out of the Royal Commission compared to CBA, ANZ and AMP Limited (ASX: AMP). This could mean that any recommendations or fines affect NAB less.

The main reason why I prefer NAB is that it is actively working with some of the fast-growing businesses which could be sources of growth away from the mortgage sector. Some of the businesses I’m talking about are REA Group Limited (ASX: REA), Xero Limited (ASX: XRO) and Afterpay Touch Group Ltd (ASX: APT).

Foolish takeaway

These businesses are the ones that are growing and this is where banks should be focusing. NAB currently has a grossed-up dividend yield of 10.3% assuming the dividend is maintained. If it can maintain this indefinitely then that’s a nice return for shareholders, however I wouldn’t want to make that bet.

Instead, I’d much rather get my dividends from one of these top blue chips.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, National Australia Bank Limited, and Xero. The Motley Fool Australia has recommended REA Group 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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