National Australia Bank Ltd (ASX: NAB) shares have been one of the better performing bank stocks in the past year.
NAB has outperformed the S&P/ASX 200 Banks Index (ASX: XBK) by 2% and the broader S&P/ASX 200 Index (ASX: XJO) by 19% during this time.
NAB shares are now up 13% this year to date and currently trading at $34.74.
With a solid dividend yield and growth potential, let's explore whether NAB shares are worth adding to your portfolio for both growth and income.
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What's for growth and income please NAB share?
NAB – like many of the ASX banking majors – is known for paying dividends.
According to my colleague Tristan, NAB shares are projected to pay an annual dividend of $1.68 per share in FY24. This translates to a dividend yield of 4.84% at the time of writing.
The bank has also paid a dividend every year since 2003 – more than twenty years of consistently returning capital to shareholders.
You're getting more than most interest-bearing savings accounts at this yield. According to Savings.com.au, only two banks offer high-interest accounts with greater than 4% rates.
UBS projects NAB to generate $7.04 billion in net profit in FY24, growing roughly 3.1% per year until FY28. This earnings growth, although modest, is stable and can fund dividends moving forward.
Valuations matter
NAB shares have surged by 24% over the past year, reflecting strong market confidence.
However, rapid increases in share prices can raise eyebrows about the all-too-common "V-word" in finance – valuations.
NAB shares were recently trading at more than 17 times UBS' estimated FY25 earnings.
However, given the recent pullback, the share now trades at a price-to-earnings ratio (P/E) of 15.95 times.
Despite this, UBS has a sell rating on NAB shares with a price target of $30.
Consensus also rates the share a hold, according to CommSec.
So should you take profits?
With NAB shares reaching levels not seen in many years and the recent market turbulence, it might be tempting to sell your position.
That's not really a discussion for this article – but here's some food for thought.
A recent report by Morgan Stanley noted that one of the most costly mistakes one can make for their retirement is panic selling.
The broker advises always staying focused on the very long term, remaining invested in high-quality assets, and using the power of compound interest.
That way, you can buy assets like NAB shares for their long-term growth and dividends – key words being "long-term".
Takeout
While NAB shares have been under pressure lately, it's not due to a sudden change in the company's fundamentals.
When considering any investment for growth and/or income, it's essential to keep the long term in mind.
Always conduct your own due diligence and consider your investment goals by speaking to a professional before making any decisions.
