Banks set to increase dividends

With three of the big four banks set to deliver their annual profit results over the coming fortnight, analysts are expecting dividend payouts to climb despite the looming financial inquiry hanging over their businesses.

Whilst Commonwealth Bank (ASX: CBA) delivered a profit of $7.8 billion for the year in August, ANZ (ASX: ANZ), NAB (ASX: NAB) and Westpac (ASX: WBC) will deliver their results over the next two weeks. It is expected that ANZ will increase its profit from last year’s $6 billion to $6.4 billion whilst NAB and Westpac will also announce profits of $6 billion and $7.1 billion, respectively. Combined, the major banks should achieve a record $27.3 billion, topping the combined $25.1 billion in 2012.

However, it seems that the attention will not so much be directed towards reported profit or revenue growth, but rather on capital and dividend payouts. Shares in Commonwealth, ANZ and Westpac each climbed to all-time highs last week and NAB achieved a multi-year high as anticipation grew over potential dividend increases.

Just as Commonwealth increased its final dividend to $2 per share in August, NAB is tipped to increase its payout by 9c to $1.89 per share. ANZ should increase its distribution from last year’s $1.45 per share to between $1.55 and $1.66 a share.

Meanwhile, analysts still expect that Westpac will have enough spare cash to deliver another special one-off 10c dividend after having done so already in March this year, despite having just spent $1.45 billion on acquiring Lloyds Banking Group’s Australian assets.

Much attention will also be given to the outlook of each of the banks. Analysts have suggested that the profits achieved by the banks will be very difficult to repeat given the relatively low-growth environment. For instance, questions have been asked regarding ANZ’s Asia prospects whilst NAB’s British business remains a source of potential risk. Westpac’s market share loss will also be heavily speculated over.

Foolish takeaway

The banks’ share prices continue to climb based on the high yields offered to income-focused investors. However, at today’s prices, it seems very unlikely that the banks will be able to deliver market-beating returns and investors should be looking elsewhere for stocks to add to their portfolio.

For instance, discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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