Better BUY: ANZ Banking Group Vs Telstra Corporation

Two great Australian dividend stocks go head-to-head

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

ANZ Banking Group (ASX: ANZ) and Telstra Corporation (ASX: TLS) have more in common than most people realise. Each have aggressive Asian growth strategies, each pay a strong dividend, each are considered the best at what they do and each are iconic Australian brands.

But which one is the best buy now? First let's first take a snapshot of each company.

Name Telstra Corporation Limited ANZ Banking Group Limited
Stock ticker ASX:TLS ASX:ANZ
Recent share price $5.27 $33.15
Market Cap $65.7 billion $90.9 billion
Price-Earnings Ratio | 10-year Average 17 | 13.3 14 | 12.4
Dividend Yield 5.3% 4.9%

Data sourced from Morningstar

As can be seen from the table above, both companies are currently trading above their 10-year average annual price-earnings ratio. However, as we know, higher price-earnings ratios, or P/E's, are excusable if we believe more growth is on its way.

Taking a look at each companies' 2014 interim results, Telstra is a clear winner. Although its net profit only rose by 7%, we've got to go beyond that result and ask why. In doing so, we can see that Telstra's NAS (Network Application Services) and International divisions both grew at a rapid pace (increasing revenues by nearly 30%) and have set the benchmark for years to come.

On the other hand ANZ posted what appeared to be a superior result – growing cash profit by 11%. Although ANZ's Asian strategy – like Telstra's – is growing strongly, delving a little deeper we can see a number of alarming trends taking place. For example provisions for bad and doubtful debts dropped 12% (thus boosting half-yearly profit), the group's net interest margin fell to just 2.15% and the amount of tier one capital also fell.

The lesson to take away from this example is to look beyond what the company's want us to see and think independently. Although Telstra may appear more expensive, it is so for good reason. ANZ's (like the rest of the big banks) results have been somewhat buoyed by a number of macroeconomic tailwinds and although it could be argued Telstra's have too, it's the eventual but inevitable headwinds of rising interest rates and bad debts which concern me.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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
ETFs

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 »

Two people in suits arm wrestle on a black and white chess board.
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 »

⏸️ 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 »