ASX bank shares have always been famous for their hefty dividends. As it stands today, this reputation seems likely to continue, with some truly massive (and fully franked) yields on display with the ASX banks at present. And no passive income investors will be more delighted than those who own ANZ Banking Group Ltd (ASX: ANZ) stock.
But let's backtrack a little. Right now, Commonwealth Bank of Australia (ASX: CBA) shares offer the lowest income to investors as it currently stands. Today, CBA shares have a trailing dividend yield of 4.32%, coming from CBA's past two dividend payments of $2.10 each.
The other ASX big four banks have far more to offer in terms of income right now though. The National Australia Bank Ltd (ASX: NAB) dividend yield is currently sitting at 6.34%. That stems from NAB's past two dividend payments of 78 cents and 83 cents per share respectively.
Westpac Banking Corp (ASX: WBC) has an even higher trailing dividend yield on the table. Its shares are sporting a yield of 6.54%. That's courtesy of the 70 cents per share and the 64 cents per share dividends this bank has forked out over the past year.
But let's get to ANZ stock. So ANZ, as we've already revealed, currently has the highest trailing dividend yield out of the big four. Plugging in ANZ's December final dividend of 74 cents, as well as the upcoming interim dividend of 81 cents per share, into the current (at the time of writing) ANZ share price of $23.03, and we get a dividend yield of 6.73%.
Why is ANZ stock's dividend yield so high compared to CBA and the other bank shares?
That comes fully franked too, so we can gross up that yield all the way to 9.61% if we include the value of those franking credits.
But this begs the question: why is ANZ's dividend yield so high compared to its ASX bank share peers?
Well, the first place to look is ANZ's price-to-earnings (P/E) ratio. A company's price-to-earnings ratio tells us how expensive a company's shares are compared to its peers. If a company's P/E ratio is higher than its peers, it tells us that investors are willing to pay more for $1 of earnings for that company than from another company with a lower P/E ratio.
As it stands today, CBA is the clear winner when it comes to P/E ratios out of the big four, with a current ratio of 16.58. This explains why CBA's dividend yield is significantly lower than the other ASX banks. The higher a company's share price relative to its dividends per share, the lower its dividend yield will be.
Westpac and NAB currently sport P/E ratios of 11.61 and 11.11 respectively. That probably explains why these banks have such similar dividend yields. But ANZ is by far the cheapest bank from a price-to-earnings ratio perspective right now. ANZ stock currently has a P/E ratio of just 9.95.
That tells us that investors are willing to spend almost twice as much for $1 of earnings from CBA as they are from ANZ. So no wonder this ASX bank stock's dividend yield is currently so high compared to the other big four bank shares.
