On Wednesday the Australian Prudential Regulation Authority (APRA) updated its capital management guidance for banks and insurers.
This new guidance eases restrictions around paying dividends and replaces its April recommendation, which advised that banks and insurers should “seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer.”
APRA’s new guidance recommends that banks and insurers restrict their dividend payout ratios to 50% for the remainder of the year.
While this will inevitably mean sizeable dividend cuts, it could have been far worse for investors.
What dividends will the banks pay?
Analysts at Goldman Sachs have been looking over the guidance and the impact that it will have on the banks.
It commented: “On balance, we see ARPA’s revised capital distribution guidelines as constructive, and we believe they will provide the banks with more flexibility to resume paying dividends.”
“On our revised DPS forecasts, the sector still offers >6% 12-month forward yield, grossed up for the value of franking credit. Furthermore, its forward PPOP multiple is trading c.1 standard deviation below its historic average. We therefore continue to have a more positive bias to our bank ratings. Buy NAB (on CL), WBC and BOQ. Sell CBA,” it added.
Here are the dividends the broker expects the big four banks to pay:
Australia and New Zealand Banking GrpLtd (ASX: ANZ)
Goldman Sachs expects ANZ to pay a 60 cents per share partially franked dividend in the second half. Which will be the only dividend paid in FY 2020. Next year it expects the bank’s full year dividend to increase to 116 cents per share. This represents a 6.2% FY 2021 yield.
Commonwealth Bank of Australia (ASX: CBA)
The broker has pencilled in a 90 cents per share fully franked final dividend for CommBank. This lifts its full year dividend to 290 cents per share. Goldman expects this to be reduced to 260 cents per share in FY 2021, representing a 3.5% dividend yield.
National Australia Bank Ltd (ASX: NAB)
Goldman Sachs believes NAB will pay shareholders a fully franked 30 cents per share final dividend to shareholders. This will mean a full year dividend of 60 cents per share. Next year the broker expects it to rebound to 103 cents per share. This equates to a 5.6% FY 2021 yield.
Westpac Banking Corp (ASX: WBC)
Finally, the broker expects Australia’s oldest bank to pay a final fully franked dividend of 45 cents. That will be the same for the full year, as no interim dividend was paid. Looking ahead, Goldman estimates that the bank will reward shareholders with a 108 cents per share dividend in FY 2021. This represents a forward 6.1% dividend yield.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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