The National Australia Bank Ltd (ASX: NAB) share price has been a good performer in 2022, rising by 8% despite all of the volatility. But how much money could it make for me over the next year?
For starters, the bank is scheduled to hand in its 2022 financial year result next week, which will reveal how many billions of dollars of profit it has made, its costs, and the net interest margin (NIM).
I think that the NIM could be one of the most interesting statistics to look at because that will show how much lending profit the bank made. The loan interest rate that NAB lends money out at is the revenue side of the equation. But, there is a cost to the funding of those loans, such as the interest rate paid on savings accounts.
With banks increasing their loan rates faster than the pace of rate rises for savings accounts, their NIMs are expected to improve, particularly in FY23. It'll be interesting to see if NAB gives some detailed information about how much more profit it could make in the new financial year thanks to the higher interest rates.
How much money could I make from NAB shares?
Let's imagine I'm going to invest $5,000 at the current NAB share price.
Ord Minnett is one of the latest brokers to release a note on the bank. It's positive on NAB shares, with an accumulate rating, and a price target of $33.70. That implies a possible rise of 6.4% over the next 12 months.
The broker likes it because of the benefit of rising interest rates.
But, we shouldn't forget about the potential dividends either.
NAB could pay a final dividend of 78 cents per share and then, in FY23, the S&P/ASX 200 Index (ASX: XJO) bank share could pay a total dividend of around $1.80 per share according to the broker's estimates. That would mean a possible dividend return of $2.58 per share over the next year or so.
In percentage returns, the dividend return would be 8.1%, excluding franking credits.
Added to the possible growth of the NAB share price of 6.4%, the total return could be 14.5% over the next year, excluding franking credits.
On an investment of $5,000, that would be a total return of $725.
It's impossible to say what the return of the ASX 200 will be over the next year, or to the end of 2022. But, using the historical average return of approximately 10% per annum, this might suggest NAB shares could deliver a bit of outperformance from here.
Foolish takeaway
NAB is my preferred choice compared to the other major ASX 200 bank shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
I like NAB's management team and I can see the progress the bank has made in turning things around. However, I believe it's worthwhile watching the loan arrears for banks to see how much higher interest rates are hurting households.
