Some Australian banks have managed to outperform the market for many years, all the while paying fully franked dividends. With such a volatile market, many investors are unsure whether now is a good time to buy and if it is, which stocks are worth your hard-earned cash.
Recently, the big four banks rose to unsustainable share prices that could only go one way in the short term. The banks have a bright future ahead of them and they will reach new highs in years to come, but they should be considered 'core' long term investments rather than short to medium term 'growth' stocks.Two of them, Commonwealth Bank (ASX: CBA) and ANZ (ASX: ANZ), are similar, but are usually held for two very different reasons.
CBA is Australia's largest bank and shareholders will be expecting full year profits to be approximately $7 billion for the last financial year. It's a truly staggering figure but will not represent more than a 1% to 2% increase from the prior period.
With the lion's share of Australian mortgages and a massive customer base, the CBA is renowned for its safe share prices. This is reinforced by the company's share price performance over the past 10 years, increasing over 140% PLUS dividends despite the GFC.
However, in the past 10 years, we've seen a housing boom and now a mining boom pass us by. These provided huge revenues for the banks and they were able to battle for mortgages and mining investment and return record profits. But with fading mining investment, they now have little domestic growth opportunities available.
ANZ has provided investors a way to have the stability, safety and yield of a big bank but also provides growth prospects. Its 'Super Regional Strategy' hopes to increase investors' expectations by deriving 30% of revenue from its Asia Pacific division by 2017. Recently, the bank has been granted licences to trade Renminbi directly from Australia and has opened retail branches in busy areas of Hong Kong.
Foolish takeaway
ANZ's share price has not been as consistent as CBA's, but at current prices provides more yield and a greater upside. Investors should consider what is right for their portfolio and their tolerance for volatility. Keep an eye on both annual reports, which come out on 14 August for CBA and 29 October for ANZ. In particular, results on ANZ's Asian expansion will provide an insight into the progress and future profitability of its strategy.
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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ.
