3 reasons I would buy NAB shares right now

National Australia Bank Ltd (ASX: NAB) shares are one of the investments I would consider making right now.

The banking sector is facing a challenging environment, with higher interest rates and pressure on household and business finances creating some uncertainty.

But I think NAB has several things working in its favour that could make it a rewarding investment over the coming years.

Here are three reasons I would be happy to buy its shares today.

Its business banking strength

One of the biggest reasons I like NAB is its strong position in Australian business banking.

The bank has established relationships with businesses of all sizes, giving it considerable exposure to commercial lending and the broader Australian economy.

I think this is an important advantage because businesses need banking services throughout their development, whether that's financing equipment, managing cash flow, or funding expansion.

And NAB continues to demonstrate its ability to grow in this market. In its third-quarter update, the bank reported that Australian business lending increased 2% during the period, with its Business and Private Banking division delivering particularly strong growth.

Of course, economic conditions could become more challenging, and struggling businesses may find it harder to repay their loans.

But over the longer term, I think NAB's position in business banking gives it a solid foundation for earnings growth.

The potential for improving profitability

Another reason I would buy NAB shares is the potential for earnings to improve.

The bank has been investing in technology, simplifying its operations, and working to improve productivity. These initiatives could allow it to serve customers more efficiently while keeping costs under control.

NAB has targeted more than $450 million in productivity savings for FY26, which I think demonstrates the opportunity to improve its operating performance.

There is also the interest rate environment to consider. The Reserve Bank of Australia recently increased the cash rate to 4.6%.

Higher rates can support bank earnings in some circumstances, particularly where lending rates increase faster than funding costs.

But competition for deposits and pressure on borrowers can offset those benefits. I think NAB's ability to manage these competing forces will be important.

Encouragingly, consensus forecasts suggest earnings per share (EPS) could be $2.38 in FY26 and then increase to $2.54 in FY27.

That's growth of approximately 6.7%, which I think would be a respectable outcome in the current environment.

And this means that at approximately $40.82, the bank is trading on a PE ratio of around 17.2 times forecast FY26 earnings and 16.1 times FY27 earnings.

I wouldn't describe that as an exceptionally cheap valuation, particularly given the risks facing the banking sector.

But I think it's reasonable for an established bank with a strong market position and opportunities to improve profitability.

An attractive dividend

The final reason I would buy NAB shares is the passive income they could provide.

Analysts expect NAB to pay dividends of $1.70 per share in FY26 and $1.72 in FY27.

That translates into forward dividend yields of approximately 4.2% for both years, before franking credits.

For Australian income investors, I think that could be an attractive return.

Foolish takeaway

I think NAB has a lot going for it at the moment.

Its business banking franchise gives it a strong position in the Australian economy, while its productivity initiatives and potential earnings growth provide reasons for optimism.

I'm particularly interested in seeing whether management can translate that underlying strength into better profitability over the next few years.

At around $40.82, I would be comfortable buying NAB shares and holding them for the long term.

The post 3 reasons I would buy NAB shares right now appeared first on The Motley Fool Australia.

Motley Fool contributor Grace Alvino 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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