Did you know: The Australia and New Zealand Banking Group (ASX: ANZ) share price is so low that it's offering investors a dividend equivalent to 9.3% grossed up?
Indeed, thanks to a 13.4% fall in share price since the beginning of the year, ANZ shares are expected to pay a dividend equal to 4x the interest on its 12-month term deposits! By anyone's standard, I think you'll agree, that's one helluva return on investment.
ANZ is one of Australia's biggest and best banks, with a market capitalisation of $80 billion. Therefore, it's almost unbelievable to think an investor can buy its shares and receive such a mighty dividend yield.
By now you probably think it might be a worthwhile strategy to transition some of that cash stuck in term deposits over to ANZ shares.
However, before you do – I urge you — consider this: Dividends are not guaranteed. Unlike term deposit holders, company directors are not required to cough up cash year-in-year-out to pay shareholders a dividend.
That's where the 'analysts' come in.
And – surprisingly – despite the market's clear lack of enthusiasm for ANZ, analysts are expecting an even bigger dividend next year and the year after. According to Morningstar's analyst consensus forecasts, fears of ANZ cutting down its fully franked dividend yield in the next year may be a little premature.
Buy, Hold, or Sell?
In my opinion, investors should take analysts' forecasts with a pinch of salt because they inevitably prove incorrect. Running a quantitative overlay is imperative to any investment decision. That means, researching the company, its strategy and industry, and its future outlook, before making any quantitative forecasts (like estimated dividend yields).
Personally, given the weaker economic outlook, I think ANZ shares are a little pricey and, therefore, are best kept on savvy investors' watchlists.
