The Australia and New Zealand Banking Group (ASX: ANZ) share price has tumbled lower on Thursday following the release of its full year result.
In late morning trade the banking giant's shares are down over 3.5% to $26.60.
Why is the ANZ share price tumbling lower?
This morning ANZ delivered a cash profit from continuing operations of $6.47 billion. This was flat on the prior corresponding period and fell a touch short of the market's expectations.
Whilst this might have contributed to its shares dropping lower, the main catalyst appears to be its surprise decision to only partially frank its final dividend.
A final dividend of 80 cents per share was declared, which was flat on the prior corresponding period, but was only partially franked at 70%.
ANZ's CEO, Shayne Elliott, explained the reasoning for the lower franking.
He said: "In proposing the Final Dividend and franking level, the Board considered the bank's strong capital position and its organic capital generation capacity. Our decision to reduce franking to a new base reflects the changed shape of our business as well as recognising how important the dividend, franking and predictability is to shareholders."
The changed shape of the business refers to its divestments of wealth businesses in Australia, as well as the changing operating environment.
ANZ believes that franking of 70% is now appropriate, which is a bit of a blow to retirees that were benefiting from the franking credits.
A decision not taken lightly.
In a supplementary release, Mr Elliott, acknowledged that this was going to impact shareholders and stressed that it wasn't a decision they took lightly.
He explained: "So what are the factors that we take into account? Well first, of course, is just the shape of our business and the degree to which our Australian earnings and the amount that they represent in our overall group profits. So that's one, and that's changed. Partly because we've sold some businesses in Australia, for the right reason, for the benefit in the long term for shareholders. And partly because, as we've mentioned, the profitability of the Australian business is under pressure."
This is essentially the same reason Macquarie Group Ltd (ASX: MQG) only partially franks its dividend.
Mr Elliott then added: "Shareholders want some level of predictability around the dividend and want to know 'how do I think about it over the longer term' and we've also tried to give some sense of that in this decision. And that's why the Board decided; maintain the dividend at 80 cents, however reduce the franking to 70 per cent."
