If you're looking to take advantage of recent weakness in the banking sector, then your best option might be the National Australia Bank Ltd (ASX: NAB) share price according to one leading broker.
A note out of Goldman Sachs on Wednesday reveals that its analysts have retained their conviction buy rating and lifted the price target on the bank's shares to $17.92.
This price target implies potential upside of 7.7% for its shares over the next 12 months excluding dividends. Including them, this potential return stretches to almost 14%.
Why NAB?
Goldman Sachs prefers NAB to the rest of the big four due to its belief that it will deliver the strongest pre-provision operating profit (PPOP) growth in the group.
Though, it has warned investors that it believes the bank will defer its interim dividend this year. This follows APRA's request for the banks to reduce or defer dividends in order to ensure there are adequate funds for lending during the coronavirus pandemic.
But it isn't just NAB. Goldman also expects Australia and New Zealand Banking Group (ASX: ANZ), and Westpac Banking Corp (ASX: WBC) to defer their interim dividends as well.
But all is not lost. The broker suspects that these banks will announce special dividends later in the year when the crisis passes.
In respect to NAB, Goldman Sachs expects it to pay a fully franked $1.00 per share dividend in FY 2020. This is then forecast to grow to $1.05 per share in FY 2021 and $1.42 per share in FY 2022.
Based on these estimates, NAB's shares offer a 6% FY 2020 yield, a 6.3% FY 2021 yield, and a massive 8.5% FY 2022 yield.
Should you invest?
Whilst my preference remains Commonwealth Bank of Australia (ASX: CBA) due to the quality of its business, I do agree that NAB would be a good option.
Especially for patient investors. As you can see above, the potential yields on offer with its shares are very attractive even after significant cuts.
And while it will take time, when conditions improve NAB's earnings will inevitably return to growth and its shares should begin to rerate higher.
Combined with its dividends, I feel NAB could provide investors with some stellar returns over the next three years.
