The ASX banking sector has been one of the worst casualties of the coronavirus pandemic and associated economic damage. The share prices of the big four ASX banks have been a disaster zone in 2020. The best performer has been the Commonwealth Bank of Australia (ASX: CBA) share price, which is 'only' down 18.59% year to date. As for National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Limited (ASX: ANZ), the picture is far bleaker. Each of these three ASX bank shares is down roughly 30% year to date.
For any shareholders that bought in this time last year expecting a 6% to 7% fully franked dividend yield, the reality has no doubt been a sobering experience.
Not only have these four ASX giants had their market capitalisations slashed in 2020, the prospects of investors receiving dividend income is also far lower – for both 2020 and beyond.
A dearth of banking dividends
Once again, shareholders of Commonwealth Bank have faired the best in 2020. CBA was lucky enough to have its interim dividend payment scheduled for February (right before the proverbial hit the fan in March). Shareholders received a $2.31 per share dividend back then and will be fortunate enough to be treated with a final dividend of 98 cents per share later this month on 30 September. That's a 23.6% haircut form 2019's dividends, but it doesn't look too bad when we look at the other three bank shares.
Right off the bat, let's get this out of the way. Westpac shareholders will not be receiving an interim dividend in 2020 at all. The bank cancelled its interim payout that was due in May. It's unclear what sort of final dividend shareholders will receive in December.
NAB did pay an interim dividend of 30 cents per share back in July. But this was partly funded by a capital raising and is still a long way from the 83 cents per share the bank paid out in 2019's interim dividend.
It's a similar story with ANZ, which will pay a deferred interim dividend of 25 cents per share on 30 September (down from 2019's 80 cents). Again, it's unclear what kind of final dividend ANZ and NAB will pay in 2020, but it probably won't be anything to write home about. It makes 'dearth' seem like a good collective noun for ASX bank shares right now.
No growth, no dividends… what do we buy ASX banks for?
Unfortunately, I don't think there are any good reasons to buy the ASX bank shares right now. I don't see any meaningful growth avenues over the next few years as our economy struggles with the virus-induced recession. People don't tend to borrow too much money in a recession, after all. Therefore, I think credit growth will be almost nonexistent for at least a few years.
Interest rates also seem likely to remain at near-zero for a number of years too, if the Reserve Bank of Australia's minutes are anything to go by. Yes, the bank shares are cheap right now, but they are cheap for a reason. A buy today might pay off handsomely in a decade's time. But I think that's a big bet to make, and not one I'm interested in placing.
