Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy for the trailing grossed-up dividend yield of 13.25%?
Well, straight away it needs pointing that the next 12 months of dividends from ANZ are extremely unlikely to amount to that yield for at least two reasons.
Reserve Bank of New Zealand (RBNZ) asks banks not to pay dividends
The RBNZ has asked New Zealand banks not to pay dividends during this period in order to make sure that the New Zealand financial system remains strong.
It doesn’t mean that profit generated in New Zealand disappears for ASX banks, but it means that the profit is quarantined for the time being. The ASX banks’ subsidiaries can’t send the profit to Australia during this period.
ANZ is particularly affected by this because it earns a sizeable amount of its profit from New Zealand. In FY19 ANZ generated 29% of its group statutory profit from New Zealand, so clearly this is going to have an effect on ANZ’s dividends before even considering the other elements of what’s going on with the coronavirus.
APRA expects ASX banks to cut dividends
Yesterday the Australian regulator wrote to ASX banks (and insurers) like ANZ asking them to materially reduce their dividends to ensure that they remain strong during the coronavirus outbreak.
How much is a material dividend reduction? Considering 29% of ANZ’s profit has been isolated from ANZ HQ, you’d think a cut of at least 20% is likely. It could be much more – who knows?
The ANZ share price is getting close to the low we saw in the GFC. Arguably I think the ANZ share price should be priced a little higher than where it was before the regulators’ dividend requests because its balance sheet will be positioned stronger to ride through this. ANZ will have more capital and it will be less likely to need to do a dilutive capital raising at a cheap price this year.
However, considering how much more pain banks may go through this year, I think there are better dividend shares to think about on the ASX.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.