Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy for a its grossed-up dividend yield of 9.2%? Some investors might say it is.
But, as with any share, don't caught up chasing just a yield. The business and its value must pass the test first, before you even consider the yield.
The ANZ yield has been materially boosted since reporting season due to the 19% fall of the share price. ANZ has been paying the same annual $1.60 per share dividend since 2016, so I wouldn't expect much growth from the current level any time soon.
ANZ is facing a number of problems at the moment. ANZ CEO Shayne Elliot may have said it best himself when he commented on the full year result "Retail banking in Australia faced strong headwinds with housing growth slowing and borrowing capacity reducing." The problems may not yet be over.
ANZ, along with it peers, recognise that the investor and interest-only segments are not as safe as they used to be now that property prices are falling.
However, one of the ways that ANZ appears to be in comparably good financial shape compared to its peers is that at the end of FY18 its CET1 ratio was 11.4%. With the other banks their recently-reported CET1 ratios were 10% at Commonwealth Bank of Australia (ASX: CBA), 10.6% at Westpac Banking Corp (ASX: WBC) and 10.2% at National Australia Bank Ltd (ASX: NAB).
I do like that ANZ still has some of its Asian banking operations, providing somewhat of a difference to its peers. It also claimed to be ranked number one for home loans in New Zealand. Whilst the Kiwi population is much smaller, their housing market is in a better shape. But I'm not sure these small differences are enough to differentiate ANZ completely.
Is the ANZ share price a buy?
Ultimately, if you're choosing to invest in ANZ for total returns at this point in the cycle you're saying that the housing downturn won't be as bad as expected and that bad debts won't significantly rise. I wouldn't be confident making that call whilst house prices are falling by around 1% a month in the key Melbourne and Sydney markets.
Whilst ANZ does look cheap trading at under 11x FY19's estimated earnings, low p/e shares are only worth considering if their earnings are sustainably rising. I think there are better options than ANZ out there right now.
