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Banks drive the ASX up – again

The S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has closed 0.6% higher, ending at 5,125.8, driven by the banks as the thirst for yield appears unquenched. Financials, healthcare and property sectors all saw strong rises.

The gold sector was today’s loser, dropping 1.8%, with materials and the metals and mining sectors also finishing in the red.

The Australian dollar is higher against the US dollar, fetching 103.1 cents.

These three stocks were the best performers in the top 20.

Westpac Banking Corporation (ASX: WBC) climbed 1.7% to close at $33.12, as investors continue to pile into the banks on the back of their dividend yields. Currently paying a dividend yield of 5.2%, before franking credits, apparently even international investors see that as tempting. With interest rates in countries like the US, UK and Japan barely above zero, anything close to, or above 5% is attractive. Westpac is expected to report its half-year results this Friday, May 3.

The issue facing investors is that on pretty much all measures, the banks are expensive, with earnings growth in the low single digits expected in the near future. At current prices, investors could be locking in low capital returns, or in a worst case scenario, seeing their yield quickly eaten away by falling share prices.

AMP Limited (ASX: AMP) added 1.5%, ending at $5.36. The wealth manager and insurance provider currently pays a dividend yield of 5%, franked to 65%. AMP is one of the most widely Australian stocks, with around 870,000 shareholders. The company also counts more than 5 million Australians as customers, and has benefitted greatly from its move into wealth management. AMP Capital, its investment management arm, currently holds around $130 billion in funds under management.

National Australia Bank (ASX: NAB) closed up 1.4% at $33.08. Like Westpac, NAB is currently paying a fully franked dividend yield of over 5% – although NAB’s is slightly higher than Westpac’s at 5.6%. Generally regarded as the ‘ugly sister’, when compared with its brethren, NAB’s share price has lagged behind the likes of CBA and Westpac. NAB is still exposed to the weak UK economy, and despite trying to sell off its UK banks, hasn’t had much success. NAB is expected to report its first-half results on Thursday, next week.

With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. Chances are even if you don’t own Telstra shares directly, your superannuation fund does. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: Buy, Sell, or Hold Telstra?

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