After much doubting, it appears Australia and New Zealand Banking Group (ASX: ANZ) CEO Mike Smith and his team got the Asia call right.
In the past three years shares are up 67% – compared to a 34% gain from the S&P/ASX 200 (INDEXASX: XJO) – and the bank has paid out bigger dividends than ever before.
But thanks to its spectacular rise, I cannot justify buying the bank’s stock at today’s prices, with it trading on a rather lofty valuation. However, for current shareholders I believe there are a number of significant reasons why it’s worth holding in your long-term portfolio.
- Asia. Back in 2007, Mr Smith and his management team set in place The Super Regional Strategy. The strategy was/is aimed at growing the bank’s exposure in overseas markets, particularly Asia. After it was launched, the bank decided upon a target of 25% to 30% of the group’s revenues were to come from overseas by 2017. So far, so good, with over 19% of cash earnings coming from overseas markets.
- Big dividends. ANZ is forecast to pay a full year dividend of 5.3% in the next 12 months. With bad debts falling and earnings from Asia growing, analysts believe it’ll increase further in coming years.
- Good margins. In Australia, ANZ’s most lucrative market, the bank boasts extremely efficient operations with a net interest margin of 2.48%. Overall the bank has a return on equity of 15.5% but it hopes to increase this in coming years. What’s more, Australia continues to experience above system growth across a number of important products, such as mortgages.
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ANZ is my favourite big bank but at the moment, but I’m reluctant to buy its shares because they’re not exactly cheap. However with over 2,000 stocks on the ASX, there’s many more available which pay big dividends just like ANZ, yet trade on a better valuation.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned in this article.