When investors consider our 'Big Four' banks – the concept of dividends will inevitably come up. All of the big banks are renowned for some of the biggest dividend yields on the ASX but dividends are important not just for what they pay today, but what they will pay tomorrow. Therefore, if you buy bank shares, you should have confidence that the dividend will not be cut in the future.
Let's take a look at all of the ASX big banks' dividends and work out which might be the best one to buy for income, both for today and for tomorrow.
Commonwealth Bank of Australia (ASX: CBA)
Commonwealth Bank is our largest company, with a market capitalisation of $146.7 billion. Commonwealth Bank paid out a dividend of $4.31 per share in 2018, which has increased every year since the GFC. This dividend represents a yield of 5.2% on current prices and 7.14% including franking credits. This gives Commonwealth Bank a payout ratio of around 75% (meaning that the bank pays out 75% of profits and keeps 25% for itself).
Westpac Banking Corp (ASX: WBC)
Westpac is the second largest bank out of the 'Big Four' with a market capitalisation of $98.87 billion. Westpac has paid out an annual dividend of $1.88 per share since 2016 and this looks set to continue for 2019, based on the interim dividend paid this week of 94 cents per share. On current prices, this represents a yield of 6.64% or 9.49% with franking credits. Westpac is sitting on a payout ratio of 81% on these numbers.
Australia and New Zealand Banking Group (ASX: ANZ)
ANZ is our third largest bank with a market cap of $79.81 billion. ANZ has a slightly different history with dividends. The bank's dividend was cut in 2016 to $1.60 per share after a pattern of rising payouts before then. It has remained at this level ever since and its next instalment of 80 cents per share will be paid on July 1 (just in time for the new financial year). This gives ANZ a yield on current prices of 5.68%, or 8.11% grossed-up. ANZ is currently paying out around 72% of profits at these levels.
National Australia Bank Ltd (ASX: NAB)
The 'baby' of the Big Four, NAB has a current market cap of $75.2 billion and has made waves recently by cutting its dividend for 2019. NAB has been paying a dividend of $1.98 per share since 2014 but announced earlier this year that its 2019 interim dividend would only be 83 cents per share ($1.66 annualised). This gives it a forward yield of 6.2% or 8.86% with franking. Before this cut, NAB was yielding 7.4% (10.57% franked), which was an incredibly fat yield and too good to last. NAB's payout ratio is now at a much healthier 77%, compared to 91.5% before the cut.
Foolish Takeaway
On these raw numbers, we can see that Westpac and NAB have the highest dividends per share, but also the highest payout ratios. The higher the payout ratio, the less of a buffer the bank has against any external headwinds. I think ANZ strikes the best balance between the two and would be the best pick on a pure income level. NAB is also looking healthier after its cut, but I think Westpac's dividend might be in dangerous territory going forward.
