Is NAB Fairly Priced? A Look at Dividend Valuation in the ASX 200 Banking Sector

May 01, 2025 03:11 PM AEST | By Team Kalkine Media

Is NAB Fairly Priced? A Look at Dividend Valuation in the ASX 200 Banking Sector — Image source: Shutterstock

PE Ratio Analysis: Sector Comparison

The price-to-earnings (PE) ratio remains one of the most commonly used tools to evaluate stock value. Currently, NAB trades at approximately 16x its FY24 earnings per share (EPS) of $2.26. By comparison, the broader banking sector average PE is around 18x. Using this average to project NAB’s valuation via mean reversion (EPS × sector PE), the resulting indicative valuation stands at $40.53—above the current trading price of $36.13.

This suggests a potential valuation upside if NAB re-aligns with the sector's average earnings multiple, a principle often seen in established banking stocks.

Dividend Discount Model (DDM) Assessment

Beyond earnings, dividend yield is a preferred metric for valuing stable, mature companies like NAB. The Dividend Discount Model (DDM) applies well here, given the bank’s consistent payout history. Using NAB’s FY dividend of $1.69 and estimating a conservative growth rate of 2% against a blended risk rate of 6%–11%, the average implied value for the shares lands at $35.74.

When the dividend is adjusted slightly to $1.71, the valuation increases to $36.16—closely aligned with NAB's market price. However, factoring in fully franked dividends and incorporating franking credits pushes the gross dividend to $2.44, inflating the valuation significantly to $51.66.

This elevated valuation underlines why many investors continue to focus on reliable ASX dividend stocks like NAB. The additional yield from franking credits can make a substantial difference, especially for income-focused portfolios.

Looking Beyond the Numbers

While these quantitative tools provide a snapshot of value, thorough evaluation should go deeper. A holistic review includes macroeconomic indicators such as unemployment rates, consumer sentiment, and housing trends—all of which influence banking profitability.

Moreover, understanding NAB’s strategic direction and risk management is essential in forming a complete investment thesis. In comparison, peers like Westpac Banking Corp (ASX:WBC), ANZ Group Holdings Ltd (ASX:ANZ), and Bendigo & Adelaide Bank Ltd (ASX:BEN) can serve as useful benchmarks in this regard.

Ultimately, models like PE and DDM form a foundational view, but investors typically layer this with qualitative insights to make informed decisions in the ever-evolving ASX 200 landscape.

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