National Australia Bank Ltd (ASX: NAB) has long been popular with income investors, much like the rest of the big four banks.
The combination of large profits and fully franked dividends has made the banking sector an obvious place to look for passive income.
So, with NAB shares well below their recent highs, is it one of the best ASX dividend shares to buy?
Image source: Getty Images
Why I like NAB for income
One reason I like NAB shares is the company's strong position in business banking.
The bank has significant exposure to small and medium-sized businesses across Australia, giving it a slightly different earnings mix from some of its major rivals.
I think that is attractive over the long term. As Australian businesses grow, borrow, invest, and manage their finances, NAB has an opportunity to grow alongside them.
Of course, banking earnings can still be affected by interest rates, competition, bad debts, and economic conditions.
But NAB remains a highly profitable business, and that gives it the capacity to return a meaningful amount of cash to shareholders.
For an income investor, that is ultimately what I want to see.
What could the dividend look like?
The current dividend forecasts look good to me.
Consensus estimates point to fully franked dividends of $1.70 per share in FY26 and $1.72 per share in FY27.
With NAB shares trading around $38.47 on Wednesday, those forecasts translate into prospective dividend yields of approximately 4.4% and 4.5%, respectively.
Eligible Australian investors may also benefit from the attached franking credits.
Is the NAB share price attractive?
NAB shares are trading well below their 52-week high of $49.45 and are now closer to their 52-week low of $35.48.
Consensus forecasts suggest earnings per share of $2.38 in FY26, rising to $2.54 in FY27.
At today's price, that puts NAB on a PE ratio of roughly 16 times forecast FY26 earnings and 15 times FY27 earnings.
I think that looks reasonable for a profitable major bank that is expected to grow earnings while continuing to pay substantial dividends.
The lower share price also means investors buying today are getting a better prospective yield than they would have received near the 52-week high.
What would I watch?
Competition remains one of the main risks.
Australian banks compete aggressively for both loans and deposits, which can put pressure on margins.
A weaker economy could also lead to higher bad debts, particularly if households and businesses come under more financial pressure.
Those are risks I would keep an eye on, but they do not change my overall view at the current price.
Foolish takeaway
I still think NAB is one of the better ASX dividend shares to buy.
At around $38.47, the valuation looks reasonable to me, while forecast fully franked dividends offer a dividend yield of roughly 4.4% to 4.5%.
For investors looking for income from the banking sector, NAB would remain high on my list.
