Why Australia and New Zealand Banking Group is a better buy that Bank of Queensland Limited and Bendigo and Adelaide Bank Ltd

The relative weakness in share price of Australia and New Zealand Banking Group (ASX:ANZ) appears to make its investment metrics particularly compelling.

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Given their smaller size, you could reasonably expect second tier banks Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN) to trade on lower multiples and with higher yields than their top tier 'Big Four' counterparts.

While that scenario might seem reasonable, it does not always turn out to be the case.

Bank of Queensland's share price remains elevated, having gained 7.5% in the past year and thereby vastly outperforming both the 8% decline in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and the negative returns of its peers.

According to data provided by Morningstar, earnings are set to jump to 104.2 cents per share (cps) in financial year (FY) 2016, while the dividend is set to rise to 76.4 cps. Based on these forecasts, the stock is trading on a price-to-earnings (PE) ratio and fully franked dividend yield of 12.7x and 5.8% respectively.

Meanwhile, Bendigo and Adelaide Bank hasn't been such an impressive performer over the past 12 months with the share price losing around 17%. The outlook for earnings and dividend growth is positive, however, with a forecast of 92.9 cps and 67.2 cps respectively. With the stock closing at $10.63 this implies a PE of 11.4x and a fully franked yield of 6.3%.

ANZ on sale?

In contrast to the double digit PE multiples of the above two bank stocks, Australia and New Zealand Banking Group (ASX: ANZ) is priced on relatively undemanding metrics.

ANZ closed Tuesday's trading session at $25.54 which means the stock is selling near a three-year low. With the bank forecast to earn 263 cps and pay dividends totalling 183.9 cps in financial year 2016, the stock is trading on a PE ratio of just 9.7x and with an attractive fully franked dividend yield of 7.2%.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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