Major ASX bank National Australia Bank Ltd (ASX: NAB) has just revealed a large dividend cut as part of its $3.5 billion capital raising. The coronavirus is causing a lot of problems.
How much of a dividend cut? The interim dividend is going to be $0.30 per share. That represents a cut of 64%. A huge cut.
But it will still be paying something to the retiree bank accounts so that they can pay for things.
So what does it mean for the dividends of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ)?
I think the boards of those banks would look quite bad to their shareholders if they didn't pay a dividend but the other banks did.
But it also seems like a strange decision to pay out a sizeable dividend to shareholders whilst also raising money at a discounted price.
Will all the ASX banks now pay a dividend?
With NAB deciding to pay a dividend, I think all of the major ASX banks will pay one. Even if they're heavily reduced. If you're a retiree you may be feeling a little better this morning. The dividends will still probably keep flowing. I don't think the banks could have gotten away with paying a much bigger one. The New Zealand profit is currently quarantined by the Reserve Bank of New Zealand (RBNZ). And then APRA wants the ASX banks to reduce the dividend.
I'd be personally surprised if Westpac and ANZ cut the dividend by less than 50%. CBA's balance sheet was stronger coming into this, so it may be able to get away with a smaller dividend cut.
It's important to remember that the banks will need to maintain good balance sheets during this because there could be a lot of bad debts over the next year. And every $1 paid out as a dividend reduces the strength of the balance sheet and also means the bank can't lend as much (in total) to potential borrowers.
If I had to pick one of the major ASX banks I'd go for CBA because of its safety. But I wouldn't want to invest in any of them for my own portfolio right now.
