Shares in Australia's biggest banks have been hit hard since September 1.
The worst performer, National Australia Bank Ltd (ASX: NAB) is down 8.55%, whilst Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: CBA) are both down 7.45%. Australia and New Zealand Banking Group (ASX: ANZ) is down 6%.
The heavy falls mean one thing for investors: Bigger dividend yields.
Right now NAB, Westpac and ANZ have grossed-up dividend yields of 8.7%, 7.8% and 7.9%, respectively.
Not so fast…
I'll be first to admit, those dividend yields are incredibly impressive, especially when interest rates remain stuck at just 2.5% and inflation sits at 3%.
However, I continue to believe the prices of Australia's big banks are demanding with considerable downside risks.
NAB appears cheapest, but it's a basket case.
Paradoxically Westpac and CommBank appear safest but their lofty share prices say otherwise.
In my opinion, ANZ is the best big bank but even it's not cheap, at today's prices.
Hold or Sell?
Whilst I'm definitely not a buyer at today's prices, shareholders who bought bank stocks at much lower prices could do a lot worse than hold on, for those juicy fully franked dividends!
I've been saying for a while however that the big banks aren't great investments at today's prices – it never makes me any friends – and the latest selloff confirms it. Now, the banks could bounce back in the next few months but I'm not prepared to risk it because I know, time is on my side.
And the best time to buy Australia's big bank stocks is at the bottom of a property cycle, which usually coincides with higher interest rates and a mounting pile of bad debts. We're not there yet.
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