ASX big banks stocks outperform even as APRA caps dividends

Shares in our big ASX banks are outperforming the broader market after the banking regulator ordered a cap on dividends.

Shares in our big ASX banks are outperforming the broader market after the banking regulator ordered a cap on dividends.

You might have thought that this would send the sector slumping into the red. But the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is leading its peers higher with a 2.4% jump during lunch to $18.51.

The Westpac Banking Corp (ASX: WBC) share price and National Australia Bank Ltd. (ASX: NAB) share price are right behind with gains of nearly 2% each.

The Commonwealth Bank of Australia (ASX: CBA) share price, the only bank to report results next month, is 1.2% in the black at $73.07.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) can barely hold its head above water after giving up its morning gains.

Glass half full

What's keeping the banks afloat if relief. The Australian Prudential Regulation Authority instructed banks today to limit their dividend payout ratio to 50%, according to the Australian Financial Review.

This means CBA is likely to announce a bigger than expected cut to its final dividend, or a large increase, depending on which side of the fence you sit.

You see, brokers are split on whether CBA will pay a dividend this time. Those who do think around a 50% cut from the $2.31 a share final dividend it paid in 2019 sounds about right.

The dividend "haves" and "have-nots"

But there are some who thought CBA would follow ANZ's and Westpac's lead in deferring their dividends altogether.

If CBA were to limit its payout ratio to 50%, it would imply a $1 a share distribution, according to the AFR.

That's a few cents under what the first broking group is forecasting but one full buck ahead of the second group of pessimists. It's clear which group investors were believing.

ASX bank dividends to return

This also explains why ANZ and WBC are bouncing harder. APRA advised the banks not to pay dividends in April and its new instructions clears the way for both to restart payments in November, when they hand in their full year results.

NAB was the only big four bank to deviate from APRA's advice three months ago to declare an interim dividend. But even then, its payment was chopped by two-thirds to a paltry 30 cents a share.

Worst has passed for bank profits

Another reason why investors are welcoming APRA's latest dividend ruling is because it shows a growing sense of confidence in the broader Australian economy.

As the AFR reported, APRA's chair Wayne Byres said "although the environment remains one of heightened risk, we now have a stronger sense of how Australia's economy and financial institutions are being impacted by COVID-19".

Pity his words haven't elicited the same level of enthusiasm from the other ASX sectors today.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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.

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