The ASX bank share space could be an appealing place to invest during the rising interest rate environment. Owning National Australia Bank Ltd (ASX: NAB) shares is one of the options to consider for dividends.
The bank may benefit from the Reserve Bank of Australia (RBA) increasing the cash rate because NAB can lend out transaction account balances for a higher return (but the cost is minimal and doesn't change, unlike a savings account balance, during rate hikes).
But, there is a danger of higher loan arrears and bad debts due to rate rises, which may be a headwind for NAB's profit. Let's have a look at what could happen with the dividend in the coming years.
Image source: Getty Images
FY26
The bank recently reported its FY26 first quarter which included some strong positives.
It said it generated $2.02 billion of cash earnings, representing a 16% increase year-over-year. The bank said that underlying net profit grew by 12% year-over-year.
The bank said it was executing across key priorities including growing business banking, driving deposit growth and strengthening its own-channel (proprietary) home lending.
Australian business lending rose 2%, with market share gains in small and medium enterprises (SMEs) and total business lending.
Its Australian home lending grew by 1.1x the speed of the overall lending system, implying that it grew market share.
NAB also noted that its deposit balances in business and private banking and personal banking, increased 3%, including 6% growth in transaction accounts excluding offsets.
The ASX bank share is also targeting productivity savings of more than $450 million for FY26 and it's also aiming for FY26 operating expense growth to be less than FY25 growth of 4.6%.
In terms of the dividend for owners of NAB shares, the projection on CMC Invest suggests that the ASX bank share could pay an annual payout of $1.705 in FY26. At the time of writing, that's a dividend yield of 4.1%, or 5.8% including franking credits.
FY27
Time will tell what happens with the Middle East, fuel prices, inflation and interest rates, but I wouldn't be surprised if we're still living with the effects of it in the 2027 financial year.
Currently, analysts are projecting an increase in the NAB dividend in the 2027 financial year. In this period of uncertainty. If I were a shareholder, I'd be happy with any sort of dividend growth during economic challenges.
The projection on CMC Invest suggests that NAB could hike its annual dividend per share by 1.5% to $1.73.
FY28
The final year of this series of projections is the 2028 financial year, which could see another year of growth for the dividend.
Currently, the forecast on CMC Invest suggests the annual payout could grow another 1.7% year-over-year to $1.76 per share.
That's certainly not the strongest growth rate around for dividend rises, but it's a lot better than nothing and would ensure a pleasing ongoing dividend yield for investors.
