There is no denying that the big four banks currently provide some of the biggest dividends on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
In light of this I believe if you don't have exposure to the banks already you could consider taking a small position in either Australia and New Zealand Banking Group (ASX: ANZ) or Westpac Banking Corp (ASX: WBC) today.
Shares of the two banks have plummeted by 17% and 15% this year, respectively. This is largely the result of fears of further capital raisings, cuts to their dividends, rising bad debts, and slowing earnings growth.
Personally, I feel that these potential headwinds which the banks are facing have been sufficiently priced in, which makes the dividend yields on offer attractive enough to offset any further downside risk.
But which of the two is the better investment option?
In FY 2017 Westpac is expected to provide an estimated fully franked 6.8% dividend, according to CommSec. This is a full 2.5% higher than the current market average dividend yield and 0.2% less than the estimated fully franked 7% dividend of ANZ.
Although ANZ is expected to provide the bigger dividend in FY 2017, I would still choose Westpac over it today.
This isn't to say I think ANZ is necessarily a bad investment at the current price. I believe that ANZ's chairman David Gonski is doing a good job in a difficult environment, but his plans to build a simpler, stronger, and better balanced bank will take some time. Earnings and dividend growth may be restricted during this time, whereas I believe Westpac is in a better position to at least deliver low-single digit growth.
In its most recent interim results for the six months ended March 2016, Westpac reported a 3% rise in cash earnings to $3.9 billion. This came despite the challenging environment it has been working in which caused impairment charges to negatively impact its results by approximately $252 million. Thankfully Westpac expects these to be lower in the second half of the year, which could prove to be a boost to earnings.
If Westpac can deliver a decent full year result then I feel the share price could make a run for $30 again. Coupled with its dividend, these potential share price gains make it an attractive investment today in my opinion.
