Your instant 3-share banking portfolio

Whether you’re seeking growth, income or safety, the ASX’s banking stocks have it all.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The top Australian banks have been called all sorts of things in past year including “overvalued”, “expensive” and “most profitable in the world”. So which banks are the right ones to own and fit best into your investing strategy? 


Many people invest in the stock market forgetting that it’s a volatile place, where one day you can lose 10% and the next you can gain 12%. For some, including those that own shares through SMSFs, investing in blue chips is believed to be a tried and true way to protect your wealth in the short term and receive healthy dividends along the way.

At the top of the safety chain is  Commonwealth Bank (ASX: CBA). With a market cap of $111 billion and the title of Australia’s largest mortgage lender, CBA is at the top of the pecking order for many investors wanting a safe return and you wouldn’t criticise them for believing it’s a healthy place for their money. Over the past 10 years it’s returned a massive 142% plus dividends. However, at current prices and with little room for growth, investors looking for income may want to look elsewhere.


Out of the S&P/ASX 20 (ASX: XTL), the National Australia Bank (ASX: NAB) pays the highest return to shareholders, boasting a dividend yield of 6.2% fully franked. At current prices, it’s operating on a moderate earnings ratio and a drop in prices looks unlikely. This year, the NAB has performed well for shareholders. A huge 22.8% rise in NPAT for the half year ended 31 March 2013, helped the share price rise by 35% for the full year. Perhaps it’s time to lock in a high-yielding, highly stable income stream.


The big banks have been competing ferociously for home loans since the GFC. Even though housing prices have remained flat in recent years, Australia has witnessed a very slight rise in financing rates. However, ANZ (ASX: ANZ) has decided that it is not going to be weighed down by domestic growth any longer.

In 2007, current CEO Mike Smith launched the ‘Super Regional Strategy’, which sought to take advantage of Asia’s rising need for finance. Since that time the potential of the strategy hasn’t been fully realised but this year is looking as though it could be the first time the strategy begins to make a profit. While some of Asia’s biggest banks struggle to remain afloat, the ANZ is prowling with healthy balance sheets and an aggressive outlook for the region. Paying a 5.1% dividend and operating at a modest share price, ANZ looks like the bank with the biggest upside.

Foolish takeaway

The recent rise in banking stocks has taught investors to buy at the right price. In May, the banks were overpriced but with the recent drop, they are more enticing. For growth stocks, investors have shown they are willing to pay extremely high prices based on expectations but since we are experiencing a slowdown in mining investment, we are also likely to witness a plateau in profits from the big four. With the exception of ANZ, I would not be paying a price of more than 11 times current earnings for any of the big banks.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Owen Raszkiewicz owns shares in ANZ. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »