Is it now time to buy shares of ASX banks because of the coronavirus share market selloff?
Just look at the pain in the industry since 21 February 2020:
The Commonwealth Bank of Australia (ASX: CBA) share price is down 36%.
The Westpac Banking Corp (ASX: WBC) share price is down 44%.
The Australia and New Zealand Banking Group (ASX: ANZ) share price is down 46%.
The National Australia Bank Ltd (ASX: NAB) share price is down 48%.
The Bank of Queensland Limited (ASX: BOQ) share price is down 39%.
The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is down 46%.
The Macquarie Group Ltd (ASX: MQG) share price is down 48%.
The Suncorp Group Ltd (ASX: SUN) share price is down 35.6%.
The best performance is a decline of just over 35%. Ouch.
One of the best pieces of investment advice is to be fearful when others are greedy and greedy when others are fearful.
Investors are clearly fearful right now. The share prices of NAB, ANZ and Westpac are trading at prices that were last seen during the GFC. After the GFC the banks were solid performers with big dividends being dished out.
Are the dividend yields too good to ignore now?
The trailing dividend yields of those big bank ASX shares now look really good:
The CBA grossed-up dividend yield is 10.8%.
The Westpac grossed-up dividend yield (assuming another 80 cents per share dividend) is 15.7%.
The ANZ grossed-up dividend yield is 15.4%.
The NAB grossed-up dividend yield is 16.5%.
The BOQ grossed-up dividend yield is 19.75%.
The Bendigo Bank grossed-up dividend yield (assuming another 31 cents per share dividend) is 16.2%.
The Macquarie Group grossed-up dividend yield is 8.8%.
The Suncorp Group grossed-up dividend yield is 12.3%.
I don't think any of the next 12 months of dividends will be the same of the last 12 months.
Why not?
The record low interest rate alone is going to cause bank net interest margins (NIMs) to fall across the board, which means lower profitability. The RBA governor has said that the interest rate is likely to stay low for quite a long time.
There's also a larger danger of the effects of the coronavirus causing a rise in bad debts for banks. Sadly, a lot of people are losing their sources of income.
I think banks are not safe dividend bets at the moment. If I were a long-term shareholder I'd much rather they hang onto the cash so that the business stays in a stronger position.
