Australia and New Zealand Banking Group (ASX: ANZ) has an attractive fully franked dividend of 6%, does that make it a buy?
ANZ is a leading Australian and New Zealand banking institution, with a presence throughout the oceanic region. ANZ is one of the Big Four Aussie banks and derives much of its revenue from mortgages, personal loans and credit.
Is it worth buying ANZ shares for the dividend?
A fully franked dividend yield of 6% seems very attractive for income. There are few shares on the ASX with such a high sustainable dividend yield.
It can be dangerous chasing a share just the sake of a dividend, but a majority of the returns generated from a bank come to the investor in the form of a dividend.
ANZ’s dividend is very attractive for a combination of factors. It is trading at a relatively low multiple of its earnings, being around 12 times FY18 continuing earnings, and it also has a fairly high dividend payout of 71.6%.
It seems as though ANZ aims to pay an annual dividend of $1.60 per share and will continue to do so during this period of tougher economic conditions assuming there isn’t a large collapse of house prices.
The key point is whether ANZ’s earnings can hold up. A dividend is as safe as the earnings generated. In FY18 cash earnings per share (EPS) declined by 4% which is quite understandable considering the CET1 ratio improved to 11.4% at September 2018, which was perhaps a bit too high.
ANZ decided to carry out a share buy-back with the spare capital, which was a good idea.
The current level of dividends from ANZ seems entirely sustainable if Australia’s house prices don’t keep falling at such a fast rate.
However, some bank analysts think that National Australia Bank Ltd (ASX: NAB) is the best bank buy with Mr Chronican taking the wheel, which could be a safer pair of hands than in the past.
3 Proven ASX Shares Better Than ANZ And NAB?
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