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Why the SMSF army are cheering ANZ’s fully franked dividend all the way to the bank

You’ve gotta give it to the Aussie banks.  Despite continued, ongoing and heightening fears about a property bubble, their share prices keep powering higher, their profits keep growing, and they keep raising their fully franked dividends.

No wonder investors have fallen in love with bank stocks.

Today, for the year to September 2013, Australia and New Zealand Banking Group (ASX: ANZ) announced an 11% increase in cash profits to $6.49 billion.

More importantly for the SMSF army, ANZ will pay a fully franked final dividend of 91 cents per share, bringing the full year payout to $1.64, up 13% on the prior year.

“There’s nothing quite like a fully franked dividend…”

There’s nothing quite like a fully franked dividend to send the SMSF Army into cloud cuckoo land.

ANZ shares are up 33% the last 12 months. They are up another 2% today at around $34, another new all-time high. Christmas truly has come early.

According to Fairfax, ANZ chief executive Mike Smith, there is “more gas in the tank” as the bank’s long-term strategy focuses on growth in domestic franchises and targeted expansion in Asia.

Pop the champagne, Fools.

While the music’s still playing, investors will keep dancing to the tune of fully franked dividends. And who can blame them?

The sizzling hot property market,  where paying $1.1m for a two-bed terrace is a “good deal”

Meanwhile, the property market is sizzling hot.

Even the buyers admit it’s hot. But it doesn’t stop them paying top dollar, and more, as witnessed by first home buyer Claudia Crause, 23, a student at the University of NSW, snapping up a two-bedroom terrace in Sydney suburb Surrey Hills for a cool $1,094,000.

As reported in The Sydney Morning Herald, this was $119,000 over the $975,000 reserve. Unruffled by the seven-digit price tag, the student said…

‘‘The market’s a bit hot at the moment. There’s a lot of people wanting terraces with potential. Prices are going up… I think we got a pretty good deal.’’

The observant reader might question how a 23 year old student might afford a $1,094,000 property. Heck, we calculate the stamp duty alone is $45,660.

The Bank of Mum and Dad rides to the rescue. It might be a good deal for Claudia, but is likely a terrible deal for Mum and Dad. Still, emotion trumps sanity.

These stories make great headlines, but they are likely the exception. Not too many kids can call on their parents to drop $1.1 million on a two-bedroom terrace.

Still, that the housing market is hot, and likely headed higher, in the short-term at least, is undeniable. It’s what happens when buyers get desperate, fearful of missing out.

It WILL be a terrible investment

The pain for the Bank of Mum and Dad will come further down the track… when interest rates start rising.

The disappointment will come when investors buying in today’s hot market slowly realise their $1.1 million will earn sub-optimal returns for 20 to 30 years.

The RBA itself has warned that future house price growth is likely to be “slower in future than in the previous 30 years.”

IS ANYONE OUT THERE LISTENING?

Not cashed-up parents, that’s for sure.

How does this property madness end?

I posed the above question to Motley Fool Investment Advisor Joe Mayger

“Hopefully, just with investors disappointed with a lack of capital appreciation. Interest rates have nowhere to go but up, though, which will boost payment sizes and hurt prices. There’s potential for it to get ugly. There are so many investors out there with a lot of leverage and who own multiple properties. And the banks themselves are so levered.”

I dread to think what might happen to property prices, and our economy, should mortgage rates return to anything like their long-term average.

How can you EVER pay this house off?

I simply cannot fathom paying over $6,000 per month, after tax, just to service the interest on a $1 million mortgage, without paying off any of the capital. In short, I’d be broke.

As Joe says, it’s so easy to get caught up thinking about doomsday outcomes that they overlook the more likely scenarios, which are still kind of bad.

Still, the hope is we Aussies keep muddling through, as we’ve done for the past 22 recession-free years. We’re the lucky country, after all.

The money is cheap. The enthusiasm is high. The property market is hot. Bank stocks are on a roll. Keep dancing, Fools.

Why I’m sticking to the share market… and you should too

As for me, I’ll just stick to the share market, thank you very much.

Shares are liquid, are cheap to buy and sell, don’t require repairs and maintenance, and don’t have any annual running costs.

You don’t need $1 million to get into the share market game, you don’t need to borrow money to buy shares, many pay a decent tax effective fully franked dividend, and over the long-term, good companies bought at fair prices will earn you an above average return.

For me, it’s a no brainer.

And the icing on the cake?

According to David Bassanese’s article in The Australian Financial Review titled “Easy way to ride a hot market“…

… we still appear to be in the early stages of a multi-year cyclical market upswing.

In all the excitement of the sizzling hot property market, it has been easy for the man in the street to forget or ignore the returns of the stock market so far in 2013.

The S&P/ASX 200 now trades above 5,400.

It has packed on a very impressive gain of almost 17% so far in 2013.

The SMSF Army is cheering all the way to bank, especially those holding popular stocks like the banks, Telstra (ASX: TLS), Woolworths (ASX: WOW) and CSL Limited (ASX: CSL).

Don’t fight the market… 

Despite my caution over property prices, my family still has a reasonable sized holding in three of the four big banks. If there’s one thing I’ve learnt in 25 years of investing it’s don’t fight the market.

And as ANZ shares are proving today, perhaps there are more gains ahead.

These two blue chips “still offer good value…”

Ross Barker, the head of respected listed investment company Australian Foundation Investment Company (ASX: AFI) — another long-time Jackson-family holding — said in the AFR on Saturday…

Commonwealth Bank (ASX: CBA) and BHP Billiton (ASX: BHP) are two blue chips that have done well recently but they still offer good value in the long term.”

Long live the property boom. Long live the mining boom. We are the lucky country.

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Of the companies mentioned above, Bruce Jackson has an interest in BHP Billiton, Commonwealth Bank, ANZ, Woolworths, Telstra and AFIC.

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