National Australia Bank Ltd (ASX: NAB) shares have seen plenty of volatility this year. But, despite all the hurt that has impacted the S&P/ASX 200 Index (ASX: XJO), the NAB share price is up 6%.
The banks are under the spotlight this year, with interest rates going up rapidly in Australia, the US, and many other major economies.
With NAB being such a large ASX bank share, along with Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ), they don't need to re-invest a lot of the profit for growth. Instead, they can pay out a sizeable amount of profit each year as a dividend.
A big dividend yield is one thing – but how much growth can it achieve from here?
Latest NAB dividend
The last payout from NAB was its final FY22 dividend. The payment was 78 cents per share – this was an increase of 16%.
This led to a full-year payout of $1.51 per share, which was an increase of 19% year over year.
NAB funded that dividend increase from an 8.3% increase of cash earnings to $7.1 billion. It generated $2.12 of cash earnings per share (EPS). The bank had a cash dividend payout ratio of 68.4%, leaving plenty of profit in the business for future growth.
How likely is growth?
When NAB recently reported its FY22 result, it said this:
We enter FY23 well positioned for what is likely to be a more challenging environment. Our business has growth momentum aligned to our strategy, supported by focused and persistent investment and prudent balance sheet settings. Disciplined execution of our strategy remains our key priority to further improve customer and colleague outcomes, drive sustainable growth and improve returns to shareholders.
However, it also noted that housing lending competitive pressures are "likely to intensify" and that the net interest margin (NIM) impact of the RBA cash rate increases on unhedged deposits is expected to peak in the first half of FY23, with the "estimated benefit of cash rate increases from October 2022 expected to be lower".
Commsec numbers suggest that NAB shares could pay an annual dividend per share of $1.71 in FY23, implying a potential rise of around 13%. This would be funded by $2.50 of EPS in FY23.
NAB could then grow its dividend by another 3.5% to $1.77 per share in FY24.
If those dividends were to be paid, the ASX bank share could pay a grossed-up dividend yield of 7.75% in FY23 and 8% in FY24.
CEO comments
The NAB CEO Ross McEwan had some reassuring words about the bank:
Our strategy is long term, and is not dependent on any particular operating environment or economic conditions. It is centred around an enduring ambition to improve the outcomes for our customers and colleagues. We have made good progress over the past two years which positions us well for a changing environment. However, there is more we can do. We will continue to remain focused on the disciplined execution of our strategy to support sustainable growth in earnings and shareholder returns over time.
NAB share price snapshot
Compared to a month ago, NAB shares are almost flat after dropping to around $30 but then steadily rising since mid-November.
