It's fair to say that ASX investors have come to expect, if not demand, fat and fully franked dividends from ASX 200 bank shares. Most of the ASX banks, most prominently the big four bank shares like ANZ Group Holdings Ltd (ASX: ANZ), have been paying out large, fully franked dividends for decades now.
It's normal to see at least one or two of these shares trade on dividend yields above 5% or even 6% at any given moment.
Right now, it's ANZ that is leading the big four pack in terms of dividend yield. At current pricing, ANZ shares are offering a trailing dividend yield of 6.04%.
That pips the next-closest rival – Westpac Banking Corp (ASX: WBC) – which is currently displaying a dividend yield of 5.44%. And it's certainly a lot better than the rate unbanklike 3.9% that Commonwealth Bank of Australia (ASX: CBA) has on the table today.
But ANZ shares have a more fickle past than most ASX banks when it comes to paying out full franking credits.
ANZ shares and franking credits
In 2019, ANZ startled investors by announcing its first dividend that didn't come with full franking credits attached in decades. Yes, the final dividend that was paid out in December 2019 came only partially franked at 70%. It came as a bit of a shock to investors at the time, who had probably grown accustomed to the steady stream of fully-franked shareholder payouts that ANZ shares had been in the habit of providing.
Here's why ANZ CEO Shane Elliot made the call back then:
Well first, of course, is just the shape of our business and the degree to which our Australian earnings and the amount that they represent in our overall group profits. So that's one, and that's changed. Partly because we've sold some businesses in Australia, for the right reason, for the benefit in the long term for shareholders. And partly because, as we've mentioned, the profitability of the Australian business is under pressure.
Remember, an Australian company can only pay franking credits on dividends derived from profits that have been taxed in Australia. If a business has commercial interests beyond our shores and is thus not subject to Australian taxes, it cannot generate franking credits. And thus, cannot pass said franking credits onto shareholders.
Does this ASX 200 bank still pay fully franked dividends?
Over subsequent years, ANZ shares returned to paying fully franked dividends, albeit not at the same level as in 2019.
However, 2023 was a different story. July's interim dividend came in at a fully franked 81 cents per share, a healthy rise over 2022's corresponding payment of 72 cents.
Nonetheless, the December final dividend was a different matter. ANZ declared a final dividend of 81 cents per share, matching its interim payout. But the bank also revealed that this payment would only come partially franked at 65%.
To help the medicine go down, ANZ also revealed a one-off special dividend of 13 cents per share to accompany its final payout for 2023. The special dividend was completely unfranked.
Shane Elliot was upfront that this special dividend was something of a sop to shareholders, paid to "offset the lower franking rate on the final dividend".
Here's some more of what he said on the lack of full franking:
Our ability to frank our dividend is influenced by the percentage of earnings generated in Australia and the tax paid on those earnings. This partial franking largely reflects our geographic diversity and the particularly strong results of our New Zealand operations and our Institutional business outside of Australia.
So no, the dividends from ANZ shares do not come fully franked anymore, at least based on this most recent dividend.
We don't yet know whether ANZ shares will pay out a fully franked interim dividend this July. Let alone a final one next December. However, given that the franking issue appears to be a structural consequence of the bank's current earnings base, shareholders might not want to assume those full franking credits are returning.
