Are the big four ASX banks like Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) now unreliable picks for dividend income?
ANZ and now Westpac have deferred the decision about what dividend they're going to pay (or not) to a later date this year.
National Australia Bank Ltd (ASX: NAB) decided to cut its dividend down to just 30 cents per share.
There's only Commonwealth Bank of Australia (ASX: CBA) that hasn't reduced its dividend yet. But that's only because its reporting cycle is different to the other three. The Reserve Bank of New Zealand (RBNZ) dividend ban and the advice by APRA to materially reduce dividends will likely mean that CBA will cut its dividend income as well.
Are the big four ASX banks now unreliable picks for dividend income?
In my opinion, banks were never reliable picks to begin with. They were only as reliable as the Australian economy as a whole. Sometimes economies have recessions. Thankfully Australia managed three decades without a recession, but one seems impossible to avoid this year.
Banks have huge balance sheets and occasionally will go through periods of having to write off bad debts. The coronavirus impacts are already expected to cause billions of dollars of damage to the big four banks. The bank dividend income payout ratios may never be as good again. Some banks may decide to hold onto more of their profit for safety and growth.
Lower official interest rates may mean banks just become less profitable than they used to be. Just look at Europe over the past decade.
Investors of Telstra Corporation Ltd (ASX: TLS) have had to get used to a lower dividend income. Bank investors may have to do the same. But it could be a good thing if it helps total returns over the long-term.
Where to look for dividends instead?
I think there are plenty of better dividend income shares out there. For starters I'd look at Brickworks Limited (ASX: BKW) with its 6.4% dividend yield and the record of forty years of reliable dividend income.
