Is the National Australia Bank Ltd (ASX: NAB) share price a buy?
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending.
Is The NAB Share Price A Buy?
The dust is settling after a sizeable dividend cut by NAB in its half year result.
NAB’s Board decided to reduce the dividend by 16% to $0.83 per share from $0.99 per share.
There many legitimate reasons for a dividend cut: the existing dividend was too high, NAB needs to focus on achieving its CET1 ratio (how safe its balance sheet is), Australian house prices are falling and that could lead to higher bad debts for NAB.
It was probably the right call, but it was painful for shareholders nonetheless who are now receiving a reduced payment.
I’ve been pretty impressed by what new CEO Philip Chronican has done so far, including implementing a debt to income ratio limit for borrowers (not just a loan to income ratio).
The key to decide if NAB is a buy today is which way the earnings will go over the shorter term and the long term.
With limited credit growth and a high chance of increasing bad debts there’s a fair chance that NAB’s earnings could drop lower in the next year or two, even though its cash earnings grew by 7.1% to $2.95 billion in the half year report.
In the longer term NAB faces a number of problems. First, there is a wide of array of competitors like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), Bank of Queensland Limited (ASX: BOQ), Bendigo and Adelaide Bank Ltd
(ASX: BEN) and Suncorp Group Ltd
(ASX: SUN).
Another issue is the rise of online competition and comparison sites which have low costs and turns home loans into more of a commodity. Think of ING, MEBank, Lendi, Finder, Mozo and so on.
So It’s Not A Good Time To Buy NAB Shares?
No, I don’t think it is. I think the big ASX banks have had their best days and the coming years will be harder. Dividend payments will probably remain attractive relative to the share price, but they could fall in an Australian recession.
For income I think one of these leading ASX dividend shares or one of the proven and reliable businesses in the free report below could better ideas than NAB.
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