If you're looking for income, then National Australia Bank Ltd (ASX: NAB) shares could be worth considering.
That's the view of analysts at Citi, who have recently upgraded the banking giant's shares.
NAB shares upgraded
According to the note, the broker has upgraded NAB's shares to a buy rating with a $32.75 price target.
Based on the latest NAB share price of $29.36, this implies potential upside of 11.5% for investors over the next 12 months.
The broker is also expecting NAB's shares to provide investors with generous yields in the near term. It is forecasting a $1.50 per share dividend in FY 2022 and then a $1.85 per share dividend in FY 2023.
This equates to fully franked yields of 5.1% and 6.3%, respectively, over the next two years.
Why is the broker positive?
Last month Citi gave NAB's third quarter update a reasonably lukewarm response. It said:
Pre-provision profit of ~$2.5bn was in-line with Citi, but ~5% below Consensus driven by weaker than expected revenue growth of just ~3%. In the quarter, Markets & Treasury income unexpectedly fell, while NIMs ex M&T were only 'up slightly' (consensus +4bpts). Underlying expense growth was better than expected at just ~1%. CET 1 of 11.6% was a strong result, but benefited from undisclosed deductions movements. Looking to 4Q, the impact of recent RBA cash rate rises will deliver a very different set of results. We expect consensus 2H22 pre-provision estimates to remain intact with some possible refinement of BDDs.
Since then, though, the NAB share price has pulled back and the outlook for the banks has improved even more so.
In respect to the latter, Citi believes that NAB and the other big four banks are well-placed to profit thanks to their significant excess liquidity as rates rise. In fact, the broker has upgraded sector earnings estimates by 2% in FY 2023 and 4% in FY 2024 to reflect this.
All in all, this could make NAB shares one to consider if you don't already have meaningful banking sector exposure.
