This ASX bank's share price is up almost 15% for this year so far, and up more than 20% if you include dividends. It may be one of the best banking stocks on the ASX, and it's one that I consider a buy at current prices.
Yes, we are talking about Australia and New Zealand Banking Group (ASX: ANZ), otherwise known as ANZ.
Why do I like ANZ?
ANZ is one of my favourite ASX banks out of the 'Big Four'. Unlike its cousin National Australia Bank Ltd. (ASX: NAB), ANZ came out of the 2018 Royal Commission without a sacked chairman and CEO.
Also, unlike its other cousins Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA), ANZ doesn't lean on the retail banking sector for the vast majority of its earnings and has a higher exposure to business credit loans. Between 2015 and 2018, the bank provided approximately $52 billion in home lending credit (mortgages), but during the same period, lent more than $95 billion in business loans. Its share of the Australian mortgage market (owner-occupier) sits at 16%, which is healthy but not at the levels of Westpac at around 24%.
I think this characteristic of ANZ is a big advantage. If there is a property slump or housing crisis, ANZ will be better placed to weather the storm due to its diversified balance sheet.
ANZ has also just completed a share buy-back program. Warren Buffett himself has said that he loves share buy-backs, and has done several with his own company Berkshire Hathaway over the past year. Share buy-backs decrease the amount of shares on the open market, giving existing shareholders an automatic return. Over the past year, the ANZ share price has been at historically low levels, so the company is also likely to be sitting on a profit with the bought-back shares to boot!
Is ANZ a buy for the dividend?
ANZ's dividend at current prices is yielding 5.84%, or 8.34% if including franking credits. This is a juicy yield and one which is looking relatively sustainable at current levels. ANZ currently pays out about 72% of its profits as dividends, which is pretty low for a bank (Westpac is currently over 80%). I think this payout ratio puts the bank on a solid footing and unless there is a significant economic downturn, I expect that the dividend yield is relatively safe at these levels.
Foolish takeaway
In my opinion, ANZ is a quality bank with a quality yield. Although I don't expect significant capital gains in the share price going forward, I think for an income investor, ANZ is a great stock to look at.
