Owning National Australia Bank Ltd (ASX: NAB) shares has been pleasing when it comes to receiving passive income in the form of dividends.
The ASX bank share sector collectively has quite a high dividend payout ratio, which pushes up the dividend yield. The other side to the equation is having a reasonable price/earnings (P/E) ratio.
The NAB share price has risen strongly over the past year, as we can see in the chart below.
After the bank's recent release of the FY24 first-half result, let's consider how big the dividend payouts might be in the future.
HY24 payout recap
NAB reported that its cash earnings of $3.55 billion for the six months to 31 March 2024 were down 12.8% year over year and down 3.1% half-on-half.
However, the diluted cash earnings per share (EPS) of $1.12 didn't drop as much – it fell 1.6% half-on-half and 12.3% year on year.
NAB decided to grow its interim dividend per share by 1.2% year over year to 84 cents per share. This was the same dividend as the FY23 second-half dividend. It represents a cash dividend payout ratio of 75%, which is generous and leaves some profit within the business for more growth.
That means the business currently has a fully franked dividend yield of around 5% and a grossed-up dividend yield of approximately 7%.
How much passive income would 200 NAB shares pay?
If NAB were to repeat the last two declared dividends as the next two dividends, it would be an annual payout of $1.68. Owning 200 NAB shares would mean receiving $336 of cash and $480 of grossed-up dividends if we include the franking credits.
But that's assuming the dividends don't change in the coming years. Some analysts think the NAB dividend may grow in the next few years.
The estimate on Commsec suggests the bank could pay a passive income of $1.70 per share in FY25 and $1.71 per share in FY26.
That means that if an investor owned 200 NAB shares, it could pay $340 in cash dividends and $486 in grossed-up dividends, with the franking credits as a bonus.
Outlook for NAB shares
The NAB dividend could be heavily influenced by how the economy performs for the foreseeable future. NAB had this to say regarding the economic outlook:
In Australia, household consumption growth slowed sharply in the second half of 2023, impacted by interest rates and cost of living pressures. This is weighing on real GDP growth which is expected to remain below-trend over the near term.
However, some relief is anticipated later this year with expected tax cuts and a forecast easing in monetary policy from November should inflation continue to moderate. Following 1.5% GDP growth over 2023, growth of 1.7% is forecast over 2024, before improving to around 2.25 % in 2025.
Pressure has eased in the labour market and wage growth is expected to slow from elevated rates in 2023. The unemployment rate is expected to continue to drift higher, peaking at around 4.5% by end 2024, but most indicators of labour demand remain healthy suggesting employment will continue to grow.
