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Which Aussie bank stock should you own?

Home loan rates are down, property prices are high, but most importantly for bank shareholders, interest rates are tipped to stay low

That means, Australia’s biggest dividend-paying stocks could be in for a welcome boost in coming months. But there are four stocks which will benefit more than most…

Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are four blue-chips currently sporting generous dividend yields.

A stable regulatory environment, healthy levels of capital, and comparatively high-yields make them a safe-haven for foreign investors.

But what about local investors? Should we be piling our investment dollars into these banking giants?

The Big Banks, at a glance

CBA Westpac ANZ NAB
Market Capitalisation $132 Billion $105 billion $92 billion $81 billion
Index Weighting 9.63% 7.72% 6.72% 5.91%
Dividend yield (trailing) 4.7% 5.5%­1 5.2% 5.7%
Cash return on equity 18.7% 16.5% 15.5% 14.6%
Cost to income ratio 42.9% 41.20% 44.3% 45.40%
Net interest margin 2.14% 2.11% 2.15% 1.94%
APRA Basel III CET-1 Ratio 8.5% 8.82% 8.33% 8.64%
Price to Book Ratio 2.91 2.27 2.06 1.88
Price to Earnings Ratio (trailing) 17.3 15.2 15.5 13.9
Price Earnings Growth Ratio 1.67 3.34 1.26 1.97

Source: Morningstar and Company Reports. 1Westpac paid a 10 cent special dividend in 2H 2013.

As you can see from the above table, the major banks account for a very large proportion of the S&P/ASX 200 Index (ASX: XJO) (INDEXASX: XJO). They are also efficient lenders of money and pay excellent dividends.

However it’s also obvious that none of the big four are ‘cheap’. So whilst they appear to be very strong businesses (and they are), their current share prices make them anything but a bargain investment.

Outside of the top four banks, Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd (ASX: SUN) and Bendigo and Adelaide Bank Limited (ASX: BEN) appear to be viable alternatives for dividend-hungry investors. However, once again, they don’t come cheap.

Another alternative is Macquarie Group Ltd (ASX: MQG), which is Australia’s biggest investment bank. Considering its growth potential in both competitive and niche market areas, it is surprising investors are placing a lesser value upon its stock, compared to some of those listed above.

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Of the major banks, I believe ANZ is most deserving of long-term investors’ money, but at current prices it is not a standout ‘Buy’. If I were forced to buy any of Australia’s banks today it’d be Macquarie, because it has a number competitive advantages over its peers and will, along with ANZ, benefit greatly from the rising prosperity of Asia’s middle-class.

However since selling my ANZ shares last year, none of Australia’s banks are currently in my personal portfolio. Instead, I’ve tried to find cheaper ASX-listed companies with dividend yields just as good as the big four. And I think I’ve found one…

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