Australia and New Zealand Banking Group (ASX: ANZ) has proven to be a great long-term buy and hold type of investment. Despite a GFC and numerous other setbacks, investors who bought ANZ 10 years ago would be sitting on 82% capital gains and an additional 74% return in the form of dividends.
By comparison, the S&P/ASX 200 (ASX: XJO) (^AXJO) has returned just 52%.
But ANZ could be about to get even better. Given its track record for dividend distributions and the possibility of higher cash earnings, I wouldn't be surprised if ANZ's board elect to distribute a dividend of $1.80 per share in the next 12 months. That would put it on a forecast dividend yield of around 5.4% at today's share price.
So much for low interest rates…
However I also believe ANZ's dividend is likely to continue growing in the medium to long term with higher earnings per share. With a focus on Asian trade flows, international banking and foreign exchange, the bank is busy differentiating its revenue streams away from the slow growing markets of Australia and New Zealand. This is in contrast to its successful but domestically focused peers such as Commonwealth Bank of Australia (ASX: CBA).
With cash profit from Asia, the Pacific, Europe and Americas (APEA) markets now accounting for over 19% of the bank's total, it appears CEO Mike Smith's long-term 'Super Regional Strategy' will (literally) start paying dividends in the near future.
Unlike Westpac Banking Corp (ASX: ANZ), ANZ's net interest income (that is, income derived from lending practices) and operating income (things like wealth management and insurance) has grown for all three of the most recent half-yearly reporting periods. With increased investment and rising prosperity in Asian countries, the bank's branch rollout and foreign exchange services will likely benefit.
To buy, or not?
Despite the possibility of rising dividends and earnings growth, ANZ trades on a fairly lofty valuation by global banking standards and investors considering buying shares at current prices will have to be content with not getting a bargain. It's something I wouldn't be prepared to do.
