Owning National Australia Bank Ltd (ASX: NAB) shares has been very rewarding for dividend income over the last several years, aside from 2020, when COVID-19 resulted in ASX bank shares cutting their payouts.
But is the S&P/ASX 200 Index (ASX: XJO) bank the strongest option for dividend payouts?
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Lots of different bank options
NAB faces plenty of competition in the banking space. There are many rival lenders listed on the ASX, let alone all the other foreign and non-listed competitors.
I'm referring to ASX companies like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Suncorp Group Ltd (ASX: SUN).
Competition among them for deposits and borrowers is pushing down on the net interest margin (NIM). But just because there is pressure on margins doesn't mean the profit is going to 0%. NAB still makes billions of dollars of profit, which means it can keep paying big dividends.
Dividend yield projections
Every analyst may have a slightly different view on how big the ASX 200 bank payouts are going to be. I'm going to use estimates on Commsec, though any other broker can provide a projection.
The estimate suggests the NAB annual dividend per share could grow by 1 cent per share to $1.68. That translates into a grossed-up dividend yield of 7.7% for FY24.
In comparison, CBA could pay a grossed-up dividend yield of 5.7% in FY24, while Suncorp is forecast to pay a 7.9% yield.
BOQ might pay a grossed-up dividend yield of 8.3%, Westpac has a projected yield of 8.8%, ANZ is estimated to pay an 8.9% yield, and Bendigo Bank could pay a grossed-up dividend yield of 9.3%.
So, NAB shares certainly do not offer the biggest dividend yield in the banking sector.
But, part of the explanation for that is the higher price/earnings (P/E) ratio that the ASX bank share trades on.
NAB share price valuation
According to the profit forecast on Commsec, NAB shares are valued at 14x FY24's estimated earnings. I personally think NAB is worthy of its slightly higher earnings multiple because of its high-performing management and its strong business banking unit.
