Are big bank shares cheap?

The Australia and New Zealand Banking Group (ASX: ANZ) share price touched an all time high price of $37.25 in March this year.

Since then the share price has been falling steadily. The decline, which started in April, has led to a 26% plunge in the share price until December 4. A comparison with the other three major banks reveals that the share price decline is not exclusive to Australia and New Zealand Banking Group. The National Australia Bank Ltd. (ASX: NAB) share price dropped by 23.19%, the Commonwealth Bank of Australia (ASX: CBA) share price dropped by 14.10% and the Westpac Banking Corp (ASX: WBC) share price dropped by 18.12% for the same period.

4 banks share prices22

Source: Google Finance

The chart above shows the share price decline of the four major banks from April until December.

The four major banks are facing industry headwinds, which have adversely impacted their share price. Some of the key headwinds are a softening economy, curb on investor loans, higher capital requirements, and a cooling property market.

However, these same headwinds have prepared the banks to better withstand any crisis should it ever eventuate. They are better capitalised today, and with the non-mining sector of the economy improving due to a falling Australia dollar and low interest rates, they will be the likely beneficiaries.

The banks’ share prices are looking oversold, and could offer an opportunity for investors to buy while the prices have slumped. The four major banks are offering a quality dividend yield with 5.22% from Commonwealth bank, 5.77% from Westpac, 6.68% from Australia and New Zealand Banking Group, and 6.69% from National Australia Bank, fully franked.

Foolish takeaway

The four major banks are quality businesses. Their share prices overheated, but are available today at reasonable valuations. The handsome dividend yield combined with a dipping share price will likely provide a Foolish investor good returns in the future.

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Motley Fool contributor Qaiser Malik 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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