National Australia Bank Ltd (ASX: NAB) shares may be one of the first candidates that passive income investors look at for dividends because of its blue-chip status.
NAB is in a competitive landscape, with names like Commonwealth Bank of Australia (ASX: CBA), ANZ Group Holdings Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), and Bendigo and Adelaide Bank Ltd (ASX: BEN) to just name a few of the other ASX bank shares trying to win loans.
But because NAB has a fairly generous dividend payout ratio and a relatively low price-to-earnings (P/E) ratio, it can offer investors a good dividend yield.
Image source: Getty Images
Dividend potential of NAB shares
According to CMC Invest's estimate, the business is projected to pay an annual dividend per share of $1.705 in FY26, then rise to $1.72 in FY27.
While that's not the fastest growth rate in the world, it does represent forecast growth year over year.
At a time of elevated financial uncertainty, any dividend growth would be welcome, in my view.
At the current NAB share price, that represents a cash dividend yield of 3.6% and a grossed-up dividend yield of 5.2%, including the franking credits.
Further dividend growth is expected in FY28, though that's a few years away, so I wouldn't be as confident about that projection as the nearer-term forecasts. The 2028 financial year annual dividend per share is estimated to be $1.755.
How much passive income for a $5,000 investment?
NAB's focus on business banking has allowed its profitability to remain relatively strong, and that could help a $5,000 investment deliver a solid return.
Based on the above yields, making a $5,000 investment today could mean unlocking $260 of annual passive income, including the franking credits. Just the cash part of the passive income would be $182, excluding franking credits.
Is this a good time to invest in NAB shares?
Analysts generally don't seem to think so, based on their price targets.
A price target indicates where the analyst expects the share price to be in 12 months from the time of the investment call.
According to CMC Invest, there are currently four buy ratings, one hold rating, and four sell ratings on the business. However, the average price target on NAB shares is $42.20, implying a decline of around 10%, according to CMC Invest.
The most optimistic price target is $50.64 – implying a possible rise of less than 10%, while the most pessimistic price target is $30, implying a decline of 36% from where it is at the time of writing.
In my view, there are other ASX dividend shares that would make better buys for both stronger dividend yields and better capital growth potential.
