Macquarie Group Ltd identifies best big Australian bank to buy

The Australian Financial Review is reporting that analysts at leading investment bank Macquarie Group Ltd (ASX: MQG) have singled out one of the big four Australian banks as the best bet among its peers for outperformance over the next three years.

Partly thanks to their big fully franked dividends many Australians will hold at least one of the big four banks of National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) or Commonwealth Bank of Australia (ASX: CBA) in their share portfolios.

The Macquarie Bank research analysts reportedly think that ANZ Bank is the outstanding big-bank pick on current prices and even offers around “28 per cent upside” over time from current share price valuations.

The analysts also note that the market is currently attributing “negative” value to ANZ’s Asian businesses, which have struggled recently on the back of China’s slowdown and the subsequent commodity price bust.

ANZ Bank’s new chief executive, Shayne Elliot, is reportedly keen to divest some of the bank’s underperforming divisions including some of its Asian operations. This would help raise equity that could be used to pre-emptively boost the bank’s capital adequacy ratio and sidestep the need for dividend cuts if the prudential regulator moves to toughen regulatory guidelines in the years ahead.

For investors, ANZ Bank also continues to offer a tempting dividend yield in the region of 6.9% based on strong expectations for a fully franked full year dividend totaling close to $1.60. Given the outlook for flat dividends over the years ahead it looks a reasonable bet for income in my opinion, although the banks should form no more than a small part of a diversified investment portfolio.

How 1 Man Turned $10K Into Over $8 Million

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more.

Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.