It’s no wonder why we all love bank stocks. Just look at those yields…
Commonwealth Bank of Australia (ASX: CBA): 4.9%
Australia and New Zealand Banking Group (ASX: ANZ): 5.2%
National Australia Bank Ltd. (ASX: NAB): 5.6%
Westpac Banking Corp (ASX: WBC): 5.1%
What’s more, each offer 100% franking!
Coupled with a Self-Managed Superannuation Fund (SMSF), the income benefit of holding one, or more, of the big four banks in your stock portfolio appears second to none.
Commonwealth Bank of Australia, is clearly investors’ favourite big bank. It’s also the favourite of mortgagees, with over 25% of the home loan market under its control. This has been its key growth driver in times gone by. However CBA has, in recent years, begun focusing on technology and innovation to grow its margins and to defend against the threat of international rivals entering the domestic market. With shares trading near all-time highs, CBA appears to be going from strength to strength. However its shares are no bargain and at current prices, I do not believe it is it good buy. Investors should wait for a lower entry point.
Westpac is our second largest bank and, like CBA, is focused on growing its share of the domestic retail banking market as well as increasing its exposure to Wealth Management and trade flows to-and-from Asia. In coming years analysts are expecting very limited growth from the bank with shares currently trading on a price-earnings to growth ratio of 3 and price to book value of 2.34. At these prices, I’m not buying in.
ANZ Bank, is also focused on Asia but unlike its larger peer it is seeking to actively compete in the region. Launched in 2007 by CEO Mike Smith, its Super Regional Strategy is well on its way to becoming a huge success with the bank deriving over 19% of profits from overseas market in the first half of 2014. However as much as I like the bank’s growth strategy, I’m still apprehensive to buy in at today’s prices.
Lastly, NAB is our largest bank by assets but also our worst bank by shareholder returns. With the bank facing a number of new and ongoing issues in the UK, it’s unlikely its share price will be able to beat the market in the foreseeable future.
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At the moment, I think none of the big banks are great investments. Although they offer spectacular dividends (at a time when interest rates are at a record low), the risk of overpaying is very real.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned in this article.