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.

3 Top Shares To Buy This Year

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.

Click here to claim your free report.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.