As all shareholders of ASX banking shares would know, 2020 wasn't exactly a great year to be holding any of the ASX's most famous dividend payers. The onset of the coronavirus pandemic, and the subsequent economic shock, played havoc with ASX bank share prices.
Take Westpac Banking Corp (ASX: WBC). Its share price started the year just a touch over $24 a share. But by 23 March, Westpac shares hit a low of just $13.47. That was the lowest share price the ASX's oldest bank had seen since 2003 (yes, even lower than the depths of the global financial crises).
Commonwealth Bank of Australia (ASX: CBA) faired the best amongst the ASX banks. But even the yellow diamond dropped more than 40% in value between 14 February and 23 March.
One of the major catalysts for these drops was likely the sudden inability for the banks to fork our their famous dividends. Not that this was entirely the banks' fault. The financial regulator APRA (Australian Prudential Regulatory Authority) actually told the banks to keep their dividends at a minimum shortly after the pandemic hit, and only eased these restrictions recently.
Will 2021 be an ASX banking bonanza?
But that was 2020. So what does 2021 hold? Will we be getting back to the days of a 6% fully franked yield anytime soon?
One banking analyst thinks we might get half-way there at least. Reporting from the Australian Financial Review (AFR) this week quotes bank analyst Brian Johnson (not the AC/DC singer, if you were wondering) on the matter.
Mr Johnson is tipping that the ASX banks will return to paying out 60-70% of their earnings as dividends in at least the first half of 2021. That's not quite at the 80-90% ratios we were seeing in 2019, but it's a lot more generous than the 50% cap that APRA imposed for most of 2020.
Johnson also says that what Commonwealth Bank (the first banking cab off the rank) announces as its interim dividend next month will "set a standard across the industry". He also states that the banks might even contemplate share buybacks and other "capital initiatives" in the second half of the year. That would further return cash to investor pockets, as share buybacks increase earnings per share (EPS) for existing shareholders.
Not out of the woods yet
However, Johnson also points out that CBA's earnings results will be closely watched for another reason – to assess the economic damage from the coronavirus pandemic. Johnson notes that JobKeeper has "injected a massive amount of money into the economy, and unemployment numbers look better than people thought they would", which has prompted "massive deposit growth so capital ratios look so much better, and the banks have strengthened their balance sheet provisioning".
However, he also states that credit growth has been "extremely anaemic" and investors will be looking to CBA's numbers to make sure "that the bad debts that the banks have incurred as a result of the pandemic are much smaller than feared even a few months ago".
Still, investors will be buoyed by Mr Johnson's comments. No doubt many will be hoping that CBA's current trailing yield of 3.45% and Westpac's 1.47% will see some much-welcomed appreciation this year.
