Is now the best time to buy shares of the big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB)?
The big banks have gone on a rollercoaster over the last 12 months. A year ago the housing market was steadily falling and the Royal Commission was tearing holes into their reputations.
Then, bit by bit over 2019, things keep getting better. The Hayne royal commission final report was worse for insurance companies and mortgage brokers than it was for the big banks.
The Liberal election win gave the financials world a boost, APRA's interest rate buffer change helped even more and the RBA's interest rate reduction was the final boost needed to help Melbourne and Sydney property prices rise by around 1.5% each last month.
With all of that good news, it's not surprising that the share prices of the big banks have risen over the course of this calendar year. And now those juicy dividend yields could be too good to ignore. Plus, may dividend shares like Transurban Group (ASX: TCL) have seen their yields compressed, making the big bank yields look comparatively better.
Commonwealth Bank's grossed-up dividend yield is 7.7%.
Westpac's grossed-up dividend yield is 9.2%.
NAB's grossed-up dividend yield is 8.8%.
ANZ's grossed-up dividend yield is 8.4%.
CBA has always been seen as the highest-quality ASX bank, so that would be my preferred bank option for total returns and to hold for the long-term. Westpac has a long history, is seen as a very 'sustainable' business and it has the highest dividend yield, so that would be my choice for shorter-term income.
Foolish takeaway
All the banks face the problem of lower net interest margins (NIMs) in the medium-term due to how low the central bank interest rates have gone. Over the long-term there are a variety of technology and fintech businesses wanting to take a slice of their earnings, such as the FAANG shares and Australia's new neobanks.
The potential of an Australia-produced recession is falling, but it's not totally gone yet. I wouldn't want to buy shares of the banks except in a heavy downturn like the GFC because of those longer-term risks. Putting up all of your capital at risk shouldn't be just for income, there needs to be long-term capital growth potential too.
