Australia’s banking stocks have pushed into unsustainable territory in recent months, with dividend hungry investors stretching some S&P/ASX 20 (^ATLI) companies to record levels. However, the recent fall in share prices in Australia’s favourite banks has given astute investors a price to buy in – the only question is which company to buy?
Yesterday, the Australian Bureau of Statistics reported that total housing finance by value fell by 0.2% in April, but there was a 1.1% rise in investment banking. Commonwealth Bank’s (ASX: CBA) senior economist, Michael Workman, says “It’s pretty much in line with the soft consumer confidence numbers at the moment”.
Mr Workman went on to say that there is hardly any growth in the number of new home buyers and for people upgrading “the tendency is still for people to pay down existing debt rather than take on new debt”.
This is troublesome for many of our big banks and shows that there is still room for further rate cuts to entice would-be homeowners. Banks like Westpac (ASX: WBC) and NAB (ASX: NAB) owe a significant amount of their revenue to mortgages and at a time when their share prices have taken a beating, the last thing they want is to be lowering investors’ expectations.
In recent times, the big four have been battling over mortgages with fancy ads like NAB’s ‘The Break Up” and financial incentives, but the domestic finance market is definitely drying up. With the mining boom no longer a boom, housing prices low and overseas investment wavering, they need to look offshore for growth.
In the top four banks, ANZ (ASX: ANZ) is the one exception when it comes to potential long term growth. It has already established itself in international markets and rebranded to be more appealing to foreign clients. It has strong leadership headed by Michael Smith and is the most profitable local bank.
ANZ is known as the growth bank, with its ‘Super Regional Strategy’ already established in Asia and now beginning to show significant revenues, it could be the right place for your hard earned cash. It has dropped a whopping 15% since 3 May and pays a fully franked dividend of 5.4%. It is just as appealing to income investors as it is value investors, with a current P/E of only 11. Perhaps 2013 is the year that ANZ ‘breaks up’ with the others.
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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ.
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Returns as of 6th October 2020
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