Are the ASX bank shares a buy for growth, dividend income, or none of the above?
The 'big 4' ASX banks are in trouble right now. First cab off the rank was National Australia Bank Ltd (ASX: NAB), which reported a nasty 50% hit to its cash earnings last week – and subsequently announced a capital raise as well as a 60% cut to its cherished dividend.
Next, we had Australia and New Zealand Banking Group Ltd (ASX: ANZ), which last week announced an equally painful 51% hit to profits and a 'deferral' of its interim dividend entirely.
Yesterday, this was backed up with Westpac Banking Corp (ASX: WBC). Westpac told the markets that its profits had cratered by 62% and as a result, was also 'deferring' its dividend until the outlook from the coronavirus shutdowns becomes clearer.
Luckily for Commonwealth Bank of Australia (ASX: CBA), it runs off a different schedule and has already reported its interim results earlier this year (before the coronavirus pandemic struck). Its results included maintenance of its interim dividend at 2019 levels ($2 per share) as well as a 4.3% hit to cash earnings. We'll have to wait until August to get a good look at CommBank's post-corona books, although the bank is scheduled to give investors a third-quarter update later this month.
Are the ASX banks a buy at all?
So, after this maelstrom of bad news, many investors will no doubt be wondering if there is any value in ASX bank shares today. These are companies that have dominated the ASX for decades after all, and not without making many shareholders extremely wealthy in the process.
Well, the answer is abundantly clear for income investors today – it's probably a no-go zone for at least the next 12 months. If ANZ and Westpac pay a dividend at all, it will no doubt be a very diminished payment going off historical standards. There might some long-term income potential, but this isn't at all clear at the current time, in my opinion.
As for a growth investor or any investor looking for a bargain, there might just be something here – but it's a risky play. The banks' share prices have been beaten down to historically low levels, and I think there's a fairly strong case to be made that it's only up from here. But how long that takes is anyone's guess. Until the banks' abilities to pay healthy dividends are restored, I don't see the shares being rerated by the market anytime soon.
