If I had a dollar for every email, tweet or message I received after writing a bearish (meaning negative) article on Australia's big bank stocks, I'd be a millionaire.
Indeed, Aussies love their bank stocks.
For one reason or another, it's very easy to see why an open discussion on bank stocks can bring out the keyboard warrior in us all.
For the record, I'll admit, despite the double-digit share price falls in some big bank stocks this year, my negative sentiment has (so far) proven to be wrong.
So with that in mind, here are…
3 reasons Aussies LOVE bank stocks
- Recession-free banking-spree
Do you remember when Westpac Banking Corp (ASX: WBC) was close to insolvency? Yeah, me neither.
Australia's Big Four banks, which hold an estimated 84% of all Australian mortgages, have benefitted immensely from continuous increases in Gross Domestic Product (GDP) since our last recession in the early 90's (that's when Westpac almost went bust).
Moreover, since then, national and household debt levels have ballooned to all-time highs, interest rates have fallen from over 16% to just 2%, and wages have soared.
- A track record fit for the trophy cabinet
It's been proven that if you buy shares in a company, you're likely to view their products more favourably than others. But that's nothing new.
Benjamin Graham, the 'father of value investing' and mentor to Warren Buffett, famously wrote in his 1949 masterpiece, The Intelligent Investor, "The speculative public is incorrigible. In financial terms it cannot count beyond 3. It will buy anything, at any price, if there seems to be some "action" in progress."
So you can just imagine how in love with bank stocks the average Aussie investor is right now – especially when you look at this:
The above chart shows the total return (dividends plus capital gains) of the big four banks, since 1992.
As you can imagine, had you bought shares in any of the big banks in 1992, you'd be very happy with yourself.
- Dividend cash cows
When any Australian investor thinks of dividends, chances are, at least one of the big banks would be in his or her top ten list. After all, the big banks are too big to fail, right? And they're government-backed, aren't they?
Sure, the government of the day won't let any the banks fail completely. However, that doesn't make them sound investments – I highly doubt Malcolm Turnbull will deliver you a cheque if your shares fall in price.
Nevertheless, their size, market dominance and juicy fully franked dividend yields make them a cash cow for personal and SMSF portfolios alike.
| Trailing dividend Yield (fully franked) | |
| CBA | 5.8% |
| Westpac | 6.2% |
| NAB | 6.5% |
| ANZ | 6.7% |
Source: Morningstar Inc.
Buy, Hold or Sell?
Between the beginning 2013 (when I started writing for The Motley Fool) and 2015, my bearish sentiment towards the big banks saw me miss on out solid share price gains and generous fully franked dividends.
However, with their valuations sky high and the economy potentially entering a rough patch, I'm still giving each of the big four banks a wide berth. As an aside, remember to focus on book value, not earnings when valuing their shares.
