Having fallen between 3% and 15% over the past three months, shares of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Rio Tinto Limited (ASX: RIO) are offering big dividend yields.
Indeed, in this low-interest rate environment they're certainly hard to ignore.
However, as savvy sharemarket investors know, dividends should form only part of the decision to buy, hold or sell a particular stock.
Let's take a quick look at each to see which — if any — are right for your portfolio…
Westpac – Trailing yield: 5.5% fully franked
Westpac shares have been hit hard in recent months after reaching a new all-time high in April. A recent decision to undertake a $2 billion capital raising through a dividend reinvestment plan and commentary from Westpac's CEO, Brian Hartzer, appear to have spooked the market. And rightly so.
Despite some investors suggesting otherwise, Australia's big banks will not be immune from a slowdown in the domestic economy. Moreover, based on recent prices Westpac's valuation had become eye-watering.
Unfortunately, even at their current price of $32.29 Westpac shares appear pricey. As I showed here, investors should hold off buying shares, for now.
ANZ – Trailing yield: 5.5% fully franked
Like Westpac, ANZ has experienced exceptional growth in its loan portfolios over the past two decades thanks to Australia's non-stop economic growth and burgeoning household debt levels. However, ANZ is unique amongst the big banks for its Super Regional Strategy, which will see it continue to expand and compete with banks throughout the booming economies of Asia.
With more than 20% of revenues generated from key overseas markets, ANZ will be able to partially offset the expected weakness in the local markets of Australia and New Zealand.
However, although ANZ is more highly leveraged to growth than its peers, its current valuation is also quite demanding. Although analysts continue to forecast modest earnings per share growth and a juicy fully franked dividend in the near future, I'd advise investors hold off buying in, for now.
Rio Tinto – Trailing yield: 4.7% fully franked
Finally, Australia's largest iron ore miner and second-largest diversified resources company, Rio Tinto, is facing a number of headwinds.
As I noted here, Rio generates two-thirds of its revenues from iron ore, copper and coal. Unfortunately, the market prices of each commodity have fallen hard in recent times, and many financial commentators are expecting more of the same.
As China's transition to a consumer-led economy continues, the oversupply situation could certainly get worse before it gets better. Whilst Rio boasts some of the lowest breakeven costs — and is therefore, unlikely to go bust — surviving doesn't equal market-beating returns.
Buy, hold or sell
At today's prices, I'd rate Westpac, ANZ and Rio Tinto as a hold, hold and sell, respectively. However, if my investment timeframe was less than five years, I wouldn't want to be holding any of them.
