ASX bank shares primed for dividend bonanza

Are ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) about to start paying heavier dividends in 2021? Quite possibly

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A young entrepreneur boy catching money at his desk, indicating growth in the ASX share price or dividends

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Investors in ASX banking shares might be in for a treat in 2021. The ASX banks have proven to be great shares to own so far this year.

My, how the times change. Sure banks recovered nicely last year from the COVID-induced lows we saw back in March. But they were somewhat left in the dust by other ASX growth shares, especially those like Xero Limited (ASX: XRO) and Afterpay Ltd (ASX: APT) in the tech space. But 2021 has proven to be not such a great year for ASX tech shares. And that has opened the door for the ASX banks to come roaring back.

Just this week, Commonwealth Bank of Australia (ASX: CBA) hit a new all-time high of $98.84 a share. CBA shares are up close to 15% year to date and more than 60% over the past 12 months.

The other major ASX banks aren’t quite at their all-time highs. But all 3 have given investors solid performances so far in 2021. National Australia Bank Ltd. (ASX: NAB) shares are up 13% year to date. Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are up 18.5% and 28% year to date respectively.

Investors can largely thank the ASX banking shares for the new all-time high that the S&P/ASX 200 Index (ASX: XJO) hit last week. With some help from the miners like BHP Group Ltd (ASX: BHP) of course. Credit where credit’s due.

Bank share prices have recovered, are dividends next?

But could things get even better for ASX bank shareholders? Whilst bank shares have more or less got back to the pricing they were at just before the COVID crash last year, investors are still waiting for bank dividends to follow suit.

Well, according to reporting in the Australian Financial Review (AFR) this morning, indeed they can.

The AFR quotes Daniel Moore, co-portfolio manager of the Investors Mutual Australian Share Fund on the matter. Mr Moore reckons 2021 is shaping up to be  a great year for banking dividends:

We now have a strong platform going forward for economic activity and company earnings. All this indicates that the outlook for dividends in 2021 and beyond is strong, and payout ratios are likely to improve.

The AFR also spoke to Nathan Zaia, banking analyst at Morningstar. Mr Zaia expects bank investors might be able to enjoy some special dividends or share buybacks in the back half of 2021. That’s because the banks are still holding more capital than what the regulator APRA is demanding right now, as a result of the economic uncertainties of last year. He added the following:

I think the ordinary dividend payout ratios will be lifted across all the banks. For ANZ probably to around 65 per cent and 70 per cent, to 75 per cent for National Australia Bank and Westpac… The Commonwealth Bank could kick-start things in, but it isn’t a sure bet.

Foolish takeaway

ASX bank shareholders will no doubt be hoping that the predictions of these gentlemen come to pass. 2020 was a very sparse year for bank dividends (Westpac ended up cancelling its interim dividend entirely). It seems 2021 might just make up some of that shortfall if these predictions are to be believed.

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Returns As of 15th February 2021

Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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