NATIONAL AUSTRALIA BANK LIMITED (ASX: NAB) shares may be one of the first candidates that passive income investors look to for profit due to its blue-chip status.
NAB is in a competitive landscape, as is the name Commonwealth Bank of Australia (ASX: CBA), ANZ GROUP HOLDINGS LIMITED (ASX: ANZ) Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), and BENDIGO AND ADELAIDE BANK LIMITED (ASX: BEN) to name just a few of the other ASX bank shares trying to win debt.
But As NAB has a fairly generous dividend payout ratio and a relatively low price-to-earnings (P/E) ratio, it can make an offer to investors. A good profitable product.
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Profitability of NAB shares
According to estimates by CMC Invest, the business is expected to pay an annual dividend of $1.705 per share in FY26, then increase to $1.72 in FY27.
While this isn’t the fastest growth rate in the world, it does represent forecast year-over-year growth.
At a time of heightened financial uncertainty, I think any increase in profits would be welcome.
At NAB’s current share price, that represents a cash dividend yield of 3.6% and a gross dividend yield of 5.2%, including franking credits.
A further dividend hike is expected in FY28, although that is a few years away, so I am not as confident about this projection as the near-term forecasts. Annual earnings per share for fiscal 2028 are estimated at $1.755.
How much passive income for a $5,000 investment?
NAB’s focus on business banking has allowed its profitability to remain relatively strong, and that can help deliver a solid return on a $5,000 investment.
Based on the above yield, investing $5,000 today could mean unlocking $260 in annual passive income, including franking credits. The cash-only portion of passive income would be $182, excluding franking credits.
Is it a good time to invest in NAB shares?
Analysts generally don’t think so based on their price targets.
The price target indicates where the analyst expects the share price to be in 12 months from the time of the investment call.
According to CMC Invest, the business currently has four buy ratings, one hold rating, and four sell ratings. However, the average price target on NAB shares is $42.20, implying a downside of about 10%, according to CMC Invest.
The most optimistic price target is $50.64 – implying a potential upside of less than 10%, while the most pessimistic price target is $30, implying a 36% decline from where it is at the time of writing.
In my view, there are other ASX dividend shares that would be better buys for both strong dividend yields and better capital growth potential.
