The S&P/ASX 200 Index (ASX: XJO) bank share ANZ Group Holdings Ltd (ASX: ANZ) is predicted to pay a very large dividend yield in FY23 and beyond. Investors could use ANZ shares to generate a pleasing amount of monthly dividend income.
ASX 200 banks typically trade with a low price/earnings (P/E) ratio. That means they trade on a low multiple of their earnings. The lower the P/E ratio, the higher the dividend yield if the business has the same dividend payout ratio.
ANZ usually pays a dividend every six months, so shareholders don't actually receive a payment each month. But, if investors think of the dividend as an annual amount, they can divide that into 12 equal parts.
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Dividend estimate
According to Commsec, ANZ shares are expected to pay an annual dividend per share of $1.60.
At the current ANZ share price, this translates into a grossed-up dividend yield of 9.4%.
There aren't too many businesses on the ASX that are expected to pay a dividend yield of more than 9% and expected to increase dividends each year to 2025.
Of course, those are just estimates at this stage. Things can change.
How to make $300 of monthly dividend income from ANZ shares
Receiving $300 of monthly dividend income equates to an annual total of $3,600 of dividends.
If an investor wanted that level of passive income, they'd need to own 2,250 ANZ shares.
At the current ANZ share price of $24.33, that means an investment today would cost around $55,000.
But, investors may not need quite as much if we think about what the dividends may be in FY24 and FY25.
In FY24, the dividend is estimated to grow by 2.5% to $1.64 per share. In FY25, Commsec estimates suggest the dividend could rise again slightly to $1.65.
If investors are focused on the possible FY24 dividend of $1.64 per share from the ASX 200 bank share, investors would only need 2,196 ANZ shares.
Should investors buy ANZ shares for dividend income?
ANZ shareholders are probably happy that the dividends are going to recover to pre-COVID levels.
However, the profit boom in this higher interest rate environment may not happen as much as investors were initially hoping. The Commonwealth Bank of Australia (ASX: CBA) boss, Matt Comyn, commented on the extremely competitive environment for banks:
The home lending market is undergoing a period of extreme change and intense competition.
Cash backs are growing in size and prevalence, and we estimate that banks have deferred costs relating to cash backs of over $1 billion. This figure has increased almost 50% in the past two years, and combined with a substantial increase in commissions over the same period, creates a margin headwind that will flow unevenly across the market.
While ANZ can pay large dividends, I'm also looking for investments that can deliver ongoing growth, so ANZ would not be one of my first picks for dividend income.
