ANZ Group Holdings Ltd (ASX: ANZ) shares are known for paying large dividends to investors. The next year could reveal very strong passive income from the bank.
That's down to a combination of the business having a relatively attractive dividend payout ratio as well as a relatively low price/earnings (P/E) ratio. When these two factors combine, it results in a high dividend yield.
Let's have a look at how large that dividend yield could be in the next year or so.
ANZ dividend forecasts
The broker Citi's preferred ASX bank share to buy in the current situation is ANZ which it says has "unique capabilities set to deliver relative outperformance in the current market conditions", according to reporting by my colleague James Mickleboro.
According to the broker, the business could be on track to pay an annual dividend per share of $1.64 in FY23. At the current ANZ share price, this would translate into a dividend yield of 7.2%, or 10.3% when grossed up for franking credits.
There could be a bigger dividend in FY24, with an increase to $1.66 per share. This would represent a dividend yield of 7.3%, or 10.4% in grossed-up terms.
If those projected payments are made, it would be one of the largest dividend yields in the S&P/ASX 200 Index (ASX: XJO).
Is it a good time to invest in the ASX bank share?
The banking sector is facing a lot of disruption from higher interest rates. Banks have quickly passed on higher interest rate rises to borrowers. But, now they're having to compete harder for depositors as well. There's competition in both lending and savings accounts.
When interest rates do go up, it means banks can earn a better margin on the transaction accounts because they don't pay interest.
The broker Citi thinks that ANZ shares are a buy, with a price target of $26.50. That implies that the ASX bank share could rise by a possible 17% over the next 12 months.
If we add in the possible dividend return, this implies that ANZ shares could deliver a total shareholder return of more than 20% over the next year.
It could depend on how ANZ's arrears and bad debts perform. Rising arrears would mean ANZ isn't getting paid on the loans, while bad debts would mean ANZ never gets paid for that particular loan. Time will tell whether things become tough, but it could be tricky as fixed-rate loans continue transitioning to a variable rate.
