The Australia and New Zealand Banking Group (ASX: ANZ) share price has been going gangbusters in 2019. ANZ shares started the year swapping hands from around $23.80 but have surged by a massive 18.5% YTD (not even including ANZ’s meaty dividend) and will start this week trading at $28.22.
What makes ANZ so special?
ANZ is one of the exclusive ‘Big Four’ banks club as well as being the fifth largest company on the ASX with a market cap of roughly $80 billion. Like its ‘Big Four’ stablemates Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB), ANZ is well known for its juicy dividend, which on current prices is yielding 8.1% grossed-up.
Some banking headwinds have turned into tailwinds over the last year. The Royal Commission into the financial sector battered the banks’ share prices down substantially, but with this in the rear-view mirror and the compensation levels for affected customers materialising, sentiment has recovered as investors remember the banks still have a massively profitable business model. Although all the ‘Big Four’ have seen big gains, year-to-date, ANZ has been the best performer. I believe there are two underlying reasons for this.
Firstly, ANZ is more sensitive to the business credit sector of the market, rather than the residential mortgage sector that Commonwealth Bank and Westpac dominate. With falling interest rates, there may be a lot more juice to be squeezed from business loans than the already-saturated mortgage market.
Secondly, ANZ is the only bank to currently have a share buy-back program in place (where the company buys back its own shares from the market). ANZ has bought back over $3.5 billion worth of shares over the last 12 months. Share buy-backs are another way for companies to deliver returns to shareholders by increasing the earnings per share (EPS) of the remaining stock. Share buybacks are more common in the US (where dividends are less attractive). Warren Buffett himself says he prefers buy-backs to dividends, so I am encouraged by ANZ’s program, particularly as their shares have been relatively cheap over the last year.
I think ANZ is one of the better bets if you are thinking about buying a bank. The company has a strong and diversified balance sheet as well as that fat 8.1% grossed up dividend yield. Income investors could certainly do a lot worse.
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.