National Australia Bank Ltd (ASX: NAB) shares are usually a solid pick for dividend income each year.
The ASX bank share generates regular cash flow from its borrowers each month.
NAB shares are able to provide investors with a good dividend yield because of two factors. Firstly, it rewards shareholders with a relatively high dividend payout ratio, and secondly, it has a relatively low price/earnings (P/E) ratio.
To know how many NAB shares it would take to generate $2,000 of dividend income, we need to consider what the payout from NAB could be.
Dividend projection for FY27
According to Commsec, the ASX bank share is forecast to pay an annual dividend per share of $1.70 in the 2026 financial year and then deliver a larger payout in the 2027 financial year.
The ASX bank share is projected to deliver shareholders an annual dividend per share of $1.72 in FY27. That would represent a year-over-year increase of 1.2%.
On the face of it, 1.2% growth is not much when inflation is eating away at the value of a dollar (at a faster rate than 1.2%). But any growth is welcome at a time when credit demand has softened, borrower arrears may rise further, and there's a lot of competition in the banking sector.
At the time of writing, the forecast payout for NAB's FY27 works out to be a dividend yield of 4.2% excluding franking credits and 6% including franking credits.
How many NAB shares are needed for $2,000 of dividends?
NAB could deliver plenty of passive income, but let's see what it would take to make $2,000 of dividends in FY27.
If the ASX bank share does pay $1.72 per share in the 2027 financial year, it would take 1,163 NAB shares to unlock the desired level of dividend cash.
However, I think we should also include franking credits in the overall income total because they come with dividend income. With franking credits included as part of the grossed-up dividend income, an investor would only need 814 NAB shares.
Is this a good time to invest in NAB shares?
Analysts are currently mixed on the ASX bank share. There have been 10 recent broker calls on NAB shares within the last three months. Three of those analyst ratings were a buy, four were a hold and three were a sell.
However, the average price target is $38.74, which implies a decline over the next year, at the time of writing. The most optimistic price target is $48.12 (suggesting an 18% rise), while the most negative price target is $28.77 (suggesting a possible 29% decline), at the time of writing.
Therefore, there could be better opportunities on the ASX share market.
The post How much must I invest in NAB shares to earn $2,000 of dividend income? appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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