Our ASX bank shares have always been viewed as the bluest of the blue chips on the ASX. Intrinsically tied to the performance of the overall economy, an old saying used to go along the lines of 'you're buying Australia when you buy the banks'.
But these days, this sentiment seems to be wearing a little thin.
Firstly, last year's Royal Commission firmly put the nail in the coffin of the idea that the ASX banks were 'on our side'. In fact, years of rip-offs and corporate misconduct were sensationally exposed.
Secondly, National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) have all disappointed investors mightily this year by reducing their level of shareholder compensation – through either dividend or franking credit cuts.
Let's take NAB – the former darling of dividend investors. At the start of this year, NAB had consistently paid an annual dividend of $1.98 per share since 2014. On today's share price, that would have represented a whopping yield of 7.56%, or 10.8% including the franking credits today.
Alas, NAB's new norm seems to be the $1.66 per share payout that the company retreated to in 2019, which 'only' represents a yield of 6.34% on todays prices, or 9.06% grossed-up.
Of course, it was obvious in hindsight that NAB couldn't keep this ridiculously high yield up in our current low-interest rate, low growth environment – it was starting to pay out nearly 100% of its earnings under the old system, after all.
But where to from here for NAB?
There remain some significant structural challenges for NAB and all of our ASX banks from here. Discounting the shocking revelations that came to light yesterday regarding Westpac, I think compensation payments will continue to weigh down all of the big four's balance sheets for a few years yet.
On top of that, unless interest rates return to their historically 'normal' levels, the spreads that the banks can expect to profit from between their loans and deposits will continue to shrink. This in turn will undoubtably place more pressure on profitability and by extension, dividends.
The rebound in property prices that we seem to be seeing across the country is one positive factor for the banks though. If this continues, it should shore up mortgage lending in the short term at least.
Foolish takeaway
Although I'm still confident in our banks over the long-term, I don't think the next few years will be amongst the best for our banks. But I will continue to hold my NAB shares and collect what ever dividends come my way regardless – good yield is hard to find these days, after all.
