How much do you need to invest in NAB shares for $12,000 in annual dividends?

Enjoying $12,000 in annual dividend income is no easy feat…

| More on:
Accountant woman counting an Australian money and using calculator for calculating dividend yield.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's probably fair to say that almost all investors who buy ASX bank shares like National Australia Bank Ltd (ASX: NAB) do so in anticipation of receiving large, fully franked dividends.

ASX bank shares like NAB have been paying fat, franked dividends for decades. It's not uncommon for at least one of the big four banks to trade with a dividend yield over 5% or even 6% at any one time.

Seeing an ASX share like NAB trade with a high dividend yield is one thing. But to work out exactly how much one passive income cash flow one can expect from an investment is another.

So today, we'll be looking at how much one would reasonably need to invest to expect $12,000 in passive dividend income annually from NAB shares today.

To start off with, NAB stock is currently trading at a share price of $33.40, up 1.03%.

At this pricing, NAB shares are trading on a dividend yield of 5%.

This trailing dividend yield comes from the December final dividend of 84 cents per share, as well as last year's July interim dividend, worth 83 cents per share. Both payments came with full franking credits attached, as is the norm for NAB.

So if each NAB share yields $1.67 in annual dividend income, one would need to own 7,186 shares to secure $12,000 (well, $12,000.62) in dividend cash flow. Buying 7,186 shares at today's pricing would set an investor back approximately $240,012.

As such, we can conclude that if one wished to secure $12,000 in annual passive dividend income from NAB shares today, one would need to be ready to fork out just over $240,000.

However, there's a major caveat to this that we need to mention.

Can we rely on NAB shares to pay consistent dividends?

A company's trailing dividend yield is a reflection of what that company has paid out in the past, not what it will pay out in the future. There's no way of knowing whether NAB shares will yield that same $1.67 in dividend income per share over the coming 12 months as it did over the past 12.

NAB could keep its dividends steady or even raise them in the next year. If that's the case, then our investor might be able to bag even more than 12 large in dividend income from that ~$240,000 investment

But there's also nothing stopping NAB from cutting its dividend payouts over the coming 12 months. If a recession, financial crisis or other impediments to NAB's profits emerge in the immediate future, the bank might be forced to cut its dividends. Or worse, scrap them entirely. We won't know what shape NAB shares' next dividends will be in until the company itself reveals them.

Of course that latter scenario is unlikely. But it is not impossible. And all investors need to be vigilant for Murphy's Law to occur on the share market.

As such, we can conclude that an investor who puts $240,000 into NAB shares today can have a reasonable expectation of receiving approximately $12,000 in annual dividend income going forward. But not a guarantee.

Motley Fool contributor Sebastian Bowen has positions in National Australia Bank. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
Bank Shares

Are Westpac shares good value or expensive?

This banking giant's shares have been strong performers this year. Is it too late to invest?

Read more »

Man pointing at a blue rising share price graph.
Bank Shares

Guess which ASX 200 bank stock just hit a 4-year high?

The bank’s profitability prospects are increasing.

Read more »

excited investor making fist at computer screen
Bank Shares

Would I be crazy to buy CBA shares at $121?

The CBA share price is close to an all-time high.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

What's the dividend yield of NAB shares right now?

What’s the size of NAB’s payout?

Read more »

A woman standing on the street looks through binoculars.
Bank Shares

Here is the earnings forecast through to 2026 for ANZ shares

Dividend investors will be keen to see what's on the horizon for ANZ.

Read more »

Happy man working on his laptop.
Bank Shares

ASX 200 bank stock smashing the benchmark on Friday as a key metric strengthens

Investors are sending the ASX 200 bank stock surging on Friday. But why?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
52-Week Highs

Why is the CBA share price setting a new all-time high today?

Australia's biggest bank just became more expensive. What is driving the demand?

Read more »

Bank building with the word bank in gold.
Bank Shares

Here's what Wilsons is saying about ANZ, CBA, NAB, and Westpac shares

What are its analysts saying about the big four banks following their updates?

Read more »