Our ASX banks are not a popular place to be investing on the ASX right now. After an extremely positive year that has seen double digit share price growth across all of the big four banks, sentiment has rapidly shifted across this sector over the last few weeks.
Firstly, National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) sliced their cherished dividends – dismaying income investors across the country.
Australia and New Zealand Banking Group (ASX: ANZ) wasn't immune from these pressures either, leaving its dividend intact at 80 cents per share but reducing the level of franking on its dividend from 100% to 70%. It's the first time ANZ has cut its franking credits this century.
Together with allegations that have surfaced over Westpac and the alleged 23 million breaches of anti-money laundering laws, it's been a bruising month or 2 for the financials sector.
To illustrate, it was only June when ANZ shares were making new 52-week highs over $29. Even in just late September, ANZ was asking close to the $29 mark. But fast forward to today, and you can pick up ANZ for just $24.85 – a 2-month turnaround of nearly 15%.
What about ANZ's dividend?
Since ANZ's raw final dividend has remained flat at 80 cents ($1.60 per year), on current prices this translates into a dividend yield of 6.44%. Now if ANZ had maintained its full franking level, this dividend would gross up to 9.2%. Although we now have to work with a dividend only partially franked to 70%, this grossed-up yield still comes out at 8.37% – hardly a pauper's return.
It's handy to keep in mind that when a share price falls but a dividend payment remains the same, the yield percentage will rise for any shares bought at the new price. At its old 52-week high June price, ANZ's raw yield was only worth 5.51% for new buyers (or 7.86% gross at 100% franking), so buyers today will be getting a better yield on cost that June buyers at the old dividend + franking level.
Foolish takeaway
For these reasons, I think ANZ is still a top buy for ASX dividend income at current prices. It is entirely possible that ANZ cuts its payout again in 2020, but that's a risk all dividend investors take with any stock.
