It seems more and more investors are expecting Australia's low interest rate environment is here to stay. That means, established blue-chip stocks with juicy fully franked dividends are likely to remain in vogue.
None more so than the Australian banks, who've not only rewarded long-term shareholders with generous dividends but also healthy capital gains. From the biggest bank, Commonwealth Bank of Australia (ASX: CBA) to Bendigo and Adelaide Bank Limited (ASX: BEN), the rewards for holding Australian banks in both superannuation and individual portfolios have proven worthwhile.
So who is the best buy now?
Thanks to the Reserve Bank of Australia's (RBA) easing cycle (which began in late 2011), bank share prices have performed nicely. With both National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) having healthily outperformed the broader S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO). However, despite their success, I don't believe they are the great investments at current prices.
Although in saying that, I wouldn't be surprised if NAB releases a stronger result later in the year, especially if the UK economy continues to grow well in the near future because, for some time, the UK Banking division has been less than impressive and dragged on the group.
However, three bank stocks which continue to impress me are Bank of Queensland Limited (ASX: BOQ), Australia and New Zealand Banking Group (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).
BOQ is currently growing outside of its home state and moving into Victoria and New South Wales, whilst also increasing the use of mobile and broker lead lending solutions. With a strong balance sheet it pays a 5% fully franked dividend.
In the most recent half year, ANZ notched-up impressive profit growth and, perhaps more importantly, demonstrated its ability to grow in Asia by generating over 19% of FX-adjusted cash profit from APEA (Asia, the Pacific, Europe and Americas) markets. It pays a 5% fully franked dividend.
Macquarie Group is unique in our banking system because it is, first and foremost, an investment bank with a global presence. In fact over 68% of income was derived offshore, unlike a majority of the other banks who rely on retail banking services. Although cyclical in nature, Macquarie appears to be a good long-term buy at current prices.
An even better buy
Whilst three of these bank stocks could hold significant value for long-term investors, I'm still not 100% convinced they're a bargain. Despite boasting big dividends and generating strong share price performances over the past few years, I don't own any of these stocks. But that doesn't mean I haven't had spectacular gains of my own…
