The Motley Fool

Are any of the big 4 ASX banks a buy for dividends?

This morning we learned that Westpac Banking Corp (ASX: WBC) was cutting its final dividend to shareholders by 15% from $0.94 per share to $0.80 per share.

Australia and New Zealand Banking Group (ASX: ANZ) gave retiree shareholders an income cut with a reduction of its franking credits amount recently and National Australia Bank Ltd (ASX: NAB) cut its dividend earlier this year. Indeed, it’s extremely likely that NAB will cut its final dividend.

The only bank that didn’t cut shareholder income was Commonwealth Bank of Australia (ASX: CBA) which maintained the FY19 dividend at $4.31 per share.

Westpac’s report included a number of troubling factors including lower profit, a lower net interest margin (NIM) of 2.12% and a rise of Australian mortgage 90+ day delinquencies. All the banks are facing these issues. 

With all of those negative factors the main thing giving the big banks any hope of growth is system credit growth, which Westpac thinks will be 3% in 2020 with housing lending growth of 3.5%.

As I’ve written dozens of times in recent years, a dividend can only grow if earnings are sustainably growing. Rising loan arrears suggests that bad debts are more likely to go up rather than down.

There is so much more competition out there for the banks. ‘Neobanks’, online-only lenders, comparison sites, mortgage brokers and so on. Plus, big tech businesses want some of those juicy bank earnings. That’s not to mention the huge issue of record low interest rates.

How can investors trust that the dividends won’t go lower if earnings stumble further? The big banks need to keep capital levels high for APRA and Reserve Bank of New Zealand (RBNZ) requirements. 

Foolish takeaway

Out of the big four, it seems Commonwealth Bank has the most reliable dividend. But I don’t own shares of any of the big four banks directly, I don’t think there’s much growth potential over the medium-term. The dividend yields aren’t that good and the dividends keep getting cut. 

Compared to the big ASX banks, I think these leading ASX shares are clear winners for both growth and reliability.

Want Some Share Ideas For 2020 And Beyond? These 3 Stocks Should Be On Your Watchlist

When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 147%) and Collins Food (up 105%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.