The National Australia Bank Ltd (ASX: NAB) share price finished 2.14% higher as the market continued to rally on the back of the Reserve Bank's lower-than-expected rate hike yesterday.
The NAB share price closed at $30.51. It came as the S&P/ASX 200 Index (ASX: XJO) ended the session 1.74% ahead.
The Australian reports that Evans & Partners has upgraded NAB to positive. The broker has put a 12-month share price target of $32 on NAB shares.
Why did NAB shares slide in September?
As my Foolish colleague Bernd reported, September was a crummy month for the market. ASX bank shares were no exception.
The Commonwealth Bank of Australia (ASX: CBA) share price slipped 7% during September. NAB shares closed the month down 5.8%. Westpac Banking Corp (ASX: WBC) shares lost 4.5%. The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price dipped slightly by 0.1%.
When it comes to banking stocks, ASX investors are worried that rising interest rates might mean reduced new mortgage lending and increased bad debts.
They are wondering whether this might wipe out the benefits of higher net interest margins (NIMs) that the banks are enjoying as borrowers pay more interest on their existing loans.
What's the outlook for the NAB share price in October?
October is looking great so far, with the NAB share price up 5.9% already. So, all of September's losses have been regained.
The whole market is up because the RBA appears to have decided to slow down its rate hikes for now.
After the RBA announcement yesterday, the ASX 200 soared 3.75% higher in its best daily performance in more than two years.
In a statement, RBA Governor Philip Lowe indicated it was time to slow down:
The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.
So, maybe it will be 0.25% hikes from here until we find out whether six months of rate rises have dampened inflation. There's a lag between rate changes and the economic impact.
What do the experts think of NAB shares?
Well, Evans & Partners analyst Azib Khan forecasts NIMs for the major banks to reach an average of 1.93% in 2023 and 2% in 2024. He reckons this might be conservative but, regardless, it's still well up.
According to reporting in the Australian Financial Review (AFR), the average NIM among the big four banks has fallen from about 2% five years ago to 1.77% today.
This bodes well for banking profits, and we'll get an idea of how well for NAB in just over a month's time.
NAB to report its FY22 results in November
The financial year of 2022 finished on 30 September for NAB, ANZ, and Westpac.
NAB plans to report its results and its next dividend payment to shareholders on 9 November.
Bank shares are typically good dividend payers. So, there's a chance that some investors might buy the stocks in October to position themselves for the next dividend payment.
This may boost the NAB share price if enough buying action occurs. And broker Citi reckons NAB shares are definitely a buy for income.
Broker says buy NAB for income
As my Fool colleague James reported on 23 September, Citi has upgraded NAB shares to a buy rating with a $32.75 price target. At market close on Wednesday, the NAB share price is $29.36.
The broker is also forecasting a $1.50 per share dividend in FY22 and a $1.85 per share dividend in FY23.
NAB's interim FY22 dividend was 73 cents, so Citi is expecting a final dividend of 77 cents in November.
Based on today's NAB share price, this equates to fully franked annual dividend yields of 7% and 8.6%, respectively.
