The National Australia Bank Ltd (ASX:NAB) share price could be a bargain buy according to one leading broker…
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The National Australia Bank Ltd (ASX: NAB) share price has been a poor performer in 2020.
Since the start of the year, the banking giant’s shares are down a sizeable 20%.
Is this a buying opportunity?
One leading broker that sees the NAB share price weakness as a buying opportunity is Goldman Sachs.
According to a note out of the investment bank late last week, its analysts have retained their conviction buy rating and lifted the price target on the company’s shares to $21.18.
Combined with its forecast of a fully franked 85 cents per share dividend, this price target implies a potential total return of over 12.5% over the next 12 months.
Why does Goldman Sachs like NAB?
While Goldman notes that NAB fell short of its earnings expectations in FY 2020, it remains positive on its prospects in a difficult operating environment.
The broker commented: “While the industry is faced with a still difficult operating environment in FY21, characterised by sustained margin headwinds (competition and low rates) and still weak (albeit improving) volume growth, we believe in FY20 NAB has again proved itself an effective manager of the volume/NIM trade-off, and has embedded strong cost discipline across the organisation.”
“Furthermore, we see NAB as further progressed in relation to its investment requirements, allowing it to be more selective towards where resources are directed (productivity and technology), versus most of its peers. Coupled with still attractive valuations (NAB’s PPOP multiple is at a 13% discount to peers), and with our TP offering 16% TSR [now 12.5%], NAB remains Buy (on CL), and our preferred sector exposure.”
Where is the NAB dividend going?
One of the key reasons that investors buy bank shares is for the dividends.
In light of this, I thought I would take a look at where Goldman Sachs thinks the NAB dividend is heading over the coming years.
As I mentioned above, the broker has forecast an 85 cents per share dividend in FY 2021. After which, it has pencilled in dividends of 122 cents per share in FY 2022 and then 126 cents per share in FY 2023.
This means prospective dividend yields of 4.3%, 6.2%, and 6.45%, respectively. These yields will almost certainly be vastly superior to anything income investors will get from term deposits between now and then.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.