National Australia Bank Ltd (ASX: NAB) shares are known for having an attractive dividend yield. As the second-largest bank on the ASX, it has scale benefits that enable it to generate huge profits, regularly invest in its operations, and pay big dividends.
Banks normally trade on a relatively low price/earnings (P/E) ratio, which is one of the main reasons why their dividend yields are so high. Another reason for the sizeable payouts is that banks usually have a high dividend payout ratio of the profit.
Let's look at how big the NAB payouts have been in the past year.
NAB dividend yield
NAB recently reported its FY24 first-half result, which showed cash earnings of $3.55 billion. That represented a reduction of 12.8% year over year and was down 3.1% half-on-half. The bank's statutory net profit was $3.49 billion. Profit is important because it funds dividend payments.
NAB decided to grow the HY24 dividend payout by 1.2% to 84 cents per share. That meant the last two dividends declared amounted to $1.68 per share.
At today's NAB share price, its current cash dividend yield is 4.9% with a grossed-up dividend yield of 7% with franking credits. That's a much stronger yield than what you can get from a savings account.
What about future payments?
The last two dividends are history, I think looking at future dividends is more important.
The estimate on CMC Markets suggests the bank may pay a total FY24 dividend per share of $1.68, so it's projected to have the same dividend yield for the rest of the year.
But, the bank is then projected to increase its annual payout in FY25 to $1.685 per share, which would be a cash yield of 4.9% and 7% grossed-up – the increase is so small the yield is approximately the same as FY24.
Earnings per share (EPS) is projected (according to CMC Markets) to fall slightly in FY24 and FY25 but then rise in FY26 to $2.37. This could fund an increase of the dividend per share to $1.715, which would represent a cash dividend yield of 5% and a grossed-up dividend yield of 7.1%.
Of course, these are just forecasts, and the payout could be stronger or weaker than what analysts are expecting, depending on what happens with the company's profit and the wider economic picture.
NAB share price snapshot
At the current NAB share price, it's valued at 15x FY24's estimated earnings. Since the start of 2024, NAB shares have gone up 12% compared to a 3% rise for the S&P/ASX 200 Index (ASX: XJO).
