National Australia Bank Ltd (ASX: NAB) shares offer investors an impressive dividend yield. It's one of the biggest dividend payers on the ASX. But, how much would an investor need to put into the S&P/ASX 200 Index (ASX: XJO) bank share to receive $200 per month? I'll answer that in this article.
Owning NAB for passive income could be a better idea than Commonwealth Bank of Australia (ASX: CBA) because of the relative valuation difference between the two, resulting in a stronger yield for NAB shareholders.
I'll show you what I mean.
According to Commsec, the NAB share price is valued at under 12 times FY23's estimated earnings, whereas CBA shares are priced at more than 16 times FY23's estimated earnings.
CBA is projected to pay an annual dividend of $4.40 per share in FY23, which translates into a forward grossed-up dividend yield of 6.4%, according to Commsec numbers.
NAB shares could pay an annual dividend per share of $1.72. This translates into a potential grossed-up dividend yield of 8.35%.
Monthly dividend income goal
NAB doesn't pay a dividend every month. Instead, it pays a dividend every six months.
So, I think it's better to think of the goal of $200 per month as an annual target of $2,400, which can then be divided into 12 equal amounts.
I'm also going to ignore the effect of franking credits for this scenario because franking credits can have a different impact on different investors, depending on their tax situation. For low-income earners, the franking credits would be a bonus.
To receive $2,400 of dividend income in 2023, using the current projections, I'd need to own 1,396 NAB shares.
At the current NAB share price of around $29.40, an investor would need to allocate around $41,000 to receive the desired amount.
NAB is currently predicted to increase its dividend each year to FY25. By the 2025 financial year, the ASX 200 bank share could be paying an annual dividend per share of $1.78. If an investor owned 1,396 NAB shares, that would mean an annual cash dividend income of $2,485. As a monthly amount, that would translate into $207.
Getting a high dividend yield and income growth seems like a good combination to me.
Foolish takeaway
Looking at all of the ASX 200 bank shares on offer, and the valuations, NAB is one of my preferred names in the industry.
I like some of the other banks as well, but I particularly appreciate the job that NAB's CEO Ross McEwan has done since taking over the leadership role. He has gotten the bank to succeed at the basics while being focused on the future.
