Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
ANZ, along with its big ASX banking peers of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB), have been pretty disappointing for investors over the past five years.
Despite a relatively strong Australian economy and the impressive housing market (to 2017 at least), ANZ's profit and dividend haven't gone anywhere.
After a cut of the dividend from $1.81 per share in 2015 to $1.60 per share in 2016, the dividend hasn't moved since. The share price and dividend are intrinsically linked to the earnings of the business – if earnings don't go up then don't expect anything else to go up.
As Warren Buffett's mentor Benjamin Graham once said, in the short run, the market is like a voting machine. But in the long run, the market is like a weighing machine. Only ANZ can sustainably send the share price higher.
The major ASX banks are so large that they have multiple targets on their backs. Some politicians see them as a cash cow, which is partly why the banking levy was introduced. Many people feel that banks are too profitable because of their unfair practices (remember the royal commission?) and market size.
Regulators APRA & ASIC want to show they are in control, so banks are likely to be less profitable over the medium-term, even before considering the effects of falling Australian house prices.
Over in New Zealand, the country's reserve bank wants ANZ to hold even more capital to be unquestionably strong. I believe it's a request that the RBNZ is allowed to make – banks are integral to the safety of the economy, but it would be a negative hit to ANZ's profitability.
Foolish takeaway
Ultimately, I think there are far too many hurdles that ANZ is facing to make it a good investment at today's price, even if it does look cheap. ANZ is currently trading at 11x FY20's estimated earnings with a grossed-up dividend yield of 8.4%.
Warren Buffett has said in the past that it's better to pay a high multiple of low earnings than a low multiple of high earnings. I completely agree with that line of thinking, the only time I'd consider buying ANZ shares is in the middle of an Australian recession.
