How many NAB shares do I need to buy for $10,000 of passive income?

Owning National Australia Bank Ltd (ASX: NAB) shares could be attractive for investors wanting passive income because of its sizeable dividend yield and the stability it can provide.

There are a couple of benefits to considering NAB over Commonwealth Bank of Australia (ASX: CBA). Firstly, it has a lower price/earnings (P/E) ratio leading to a higher dividend yield.

Additionally, NAB isn’t as reliant on home loans as CBA – it generates a much bigger proportion of its profit from businesses.

Let’s start by looking at the projection for FY26 before seeing what it would take to receive $10,000 of passive income.

NAB dividend projection for FY26

National Australia Bank is projected to pay an annual dividend per NAB share of $1.72 in the 2026 financial year, which would represent a slight rise year over year.

At the time of writing, that translates into a grossed-up dividend yield of 6.8%, including franking credits.

When the RBA increases interest rates, banks have the potential to deliver stronger profits because of the ability to increase the net interest margin (NIM) – that’s how much a bank makes on its lending, which includes both the loan rate and funding costs like savings accounts.

While, in theory, loans and savings rates go up at the same pace, banks can lend out money in accounts such as transaction balances that don’t pay interest to the customer for a higher return to borrowers. But, the reverse is true when the RBA decreases rates.

In my view, that’s partly why the outlook for NAB’s profit growth is positive for the next 12 months.

How much is needed to buy $10,000 of passive income?

There are two different ways to consider what’s needed for the targeted level of passive income. Either with franking credits or excluding franking credits.

Australian investors get the benefit of this refundable tax offset, so I definitely think it should be included in the investors’ thoughts about the dividend income.

To receive $10,000 of passive income excluding franking credits, an investor would need 5,814 NAB shares.

Including franking credits, an investor would only need 4,070 NAB shares.

Is this a good time to invest in NAB shares?

According to CMC Invest, there have been 10 ratings on the ASX bank share within the last three months.

Of those 10, four are hold ratings, four are sell ratings and two are buy ratings. In other words, investment professionals are, on average, slightly more negative than positive on the NAB share price.

The average price target on NAB is $37.84, suggesting a small single-digit rise in percentage terms in the next 12 months.

It seems there are better opportunities than NAB out there right now.

The post How many NAB shares do I need to buy for $10,000 of passive income? appeared first on The Motley Fool Australia.

More reading

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• Hedge funds are shorting the big four bank shares. Should investors be worried?
• What are the big 4 banks worth as the housing market falters?
• The next RBA interest rates move will be down, NAB says

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.