The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is likely to find support today after it did what some of its peers couldn’t – pay a dividend.
The bank released its quarterly update that will stand in contrast to the one provided by Westpac Banking Corp (ASX: WBC) yesterday.
Dividend and provisioning surprise
ANZ Bank gave the green light to pay a 25 cents a share interim dividend as it unveiled a 30% increase in cash profit from continuing operations to $1.5 billion in the third quarter.
What’s more, it lowered its provision charge (a buffer it set aside to deal with the impact of COVID-19) by more than $1 billion to $500 million.
Westpac the worst of the big banks
The tone of the results could not be any different from Westpac. The bank decided to scrap its interim dividend as it lifted provisions to deal with the pandemic and posted a big quarterly loss.
Westpac’s results triggered a more than 2% drop in the WBC share price yesterday and dragged its peers lower even as the S&P/ASX 200 Index (Index:^AXJO) rallied 0.8%.
Investors were likely bracing for similar bad news from ANZ Bank today, and that’s why I think the stock will rally.
Dividend cut is good news
Nevermind that the 25-cent payment is a big cut from the 80-cent interim dividend it paid last year. Investors will still be pleased as it shows management is confident enough about its future to distribute one, and confidence is in short supply.
The interim dividend represents 46% of ANZ’s 1H20 statutory profit, well within APRA’s latest guidelines for banks to pay no more than 50% of their profit as dividends.
“We know many of our shareholders rely on dividends,” said ANZ’s chair David Gonski.
“We’ve been able to build on our strong capital position this quarter, and this has enabled us to pay a dividend that balances the needs of our shareholders with the uncertain economic environment.”
Don’t count your dividend chickens
Both Westpac and ANZ Bank were meant to declare an interim dividend when they handed in their half year results in May. But they decided to postpone the decision till this month to see how the COVID-19 crisis unfolded.
Bendigo and Adelaide Bank Ltd (ASX: BEN) is another that just reported its results and decided to kick the dividend can down the road to November to see if it can afford to pay one.
Investors will also be pleased that ANZ’s CET1 ratio stands at a reasonably healthy 11.3%. This ratio is the amount of cash the bank sets aside to cover its loan book.