Is the ANZ share price a smart idea for dividend income?

How are ANZ shares placed for delivering strong passive income stream?

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Key points

  • The ANZ share price is expected to offer a dividend yield of above 7% in FY22
  • Broker Morgan Stanley rates the bank as a buy, with a price target of $30.30
  • ANZ expects that a rising interest rate environment would be beneficial for margins

Could the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price be an attractive option to consider for dividend income?

ANZ is one of the big four ASX banks, alongside National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).

The big banks have a reputation as ASX dividend shares.

How big is the ANZ dividend going to be?

Commsec has estimated what the ANZ dividend could be looking ahead, based on numbers provided by external data providers.

In FY22, the ANZ annual dividend is projected to be $1.44 per share. That would translate into a grossed-up dividend yield of 7.4% at the current ANZ share price.

Then, in FY23, that dividend is expected to increase to $1.55 per share. This would mean the FY23 grossed-up dividend yield could be 8%.

In FY24, the annual dividend could rise again to $1.65 per share. If that happened, the ANZ grossed-up dividend yield would be 8.5%.

The latest dividend

The last time investors got a dividend update was the FY21 final dividend paid on 16 December 2021, which was 72 cents per share. That brought the full-year dividend to $1.42 per share, an increase of 82 cents compared to the 60 cents per share dividend in FY20.

The FY21 ANZ grossed-up dividend yield represents a grossed-up dividend yield of 7.3%.

Is the ANZ share price a buy?

Morgan Stanley recently called the ANZ share price a buy, with a price target of $30.30.

The broker thinks that the net interest margin (NIM) of ANZ could benefit as interest rates rise.

ANZ economists predict that the Reserve Bank of Australia (RBA) will start raising the interest rate in June 2022. All the big four banks now believe that the RBA will increase the interest rate.

However, the NIM could be impacted by higher costs for term deposits, which ANZ apparently has a lot of.

Morgan Stanley puts the ANZ share price at 13x FY22’s estimated earnings and under 12x FY23’s estimated earnings.

Latest profit update from ANZ

In February 2022, the ANZ gave a quarterly update for the three months to 31 December 2021. The bank advised the net interest margin fell eight basis points for the quarter, but the impact of rising rates was expected to moderate headwinds such as competition.

The bank added that it had made progress in Australia to improve its systems and processes.

It also said that the credit quality environment remained benign.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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