Investors, particularly those concerned with receiving a steady cash flow from their portfolios, such as retirees and self-managed super fund (SMSF) administrators, have for many years now crowded into the 'Big Four' banks and a handful of other blue-chip stocks in search of high yields, steady dividends and franking credits.
Until now, that strategy has "paid dividends" (pardon the pun), however 2014 is shaping up as a year where capital losses may prove detrimental to total returns.
You see, as The Motley Fool has been warning for some time, investing in equities can NEVER just be about dividends. Capital gains and losses are equally as important and arguably much more so.
Investors who have failed to heed this warning look set for a shock as we enter the final quarter of the calendar year.
While bank shareholders have indeed enjoyed steady dividends and received roughly a 5% fully franked yield over the course of 2014, shareholders are currently looking at a capital losses over the calendar year so far, with the exception of one of the 'Big Four'. More significantly, if share prices continue to retreat, shareholders could potentially experience capital losses to such a degree that it completely wipes out the return from their dividends.
Here are the stats in order of market capitalisation for share price return year to date (YTD):
Commonwealth Bank of Australia (ASX: CBA): $122.1 billion; YTD down 2.1%
Westpac Banking Corp (ASX: WBC): $99.4 billion; YTD up 0.2%
Australia and New Zealand Banking Group (ASX: ANZ): $85.5 billion; YTD down 2.5%
National Australia Bank Ltd. (ASX: NAB): $76.5 billion; YTD down 5.7%
The real lesson from this is not how these four bank stocks have performed over a specific 12-month period; rather it should serve as a reminder for investors that your total return is made up of distributions and movements in the share price. Any investor who has purchased bank shares purely for their yield alone is running the risk of being duped!