Buying what looks like a high-yield ASX dividend stock isn't always the slam dunk that an investor might hope for. A high dividend yield does indicate that a share may prove to be a lucrative source of dividend income going forward. But it also might be warning investors that the markets are expecting dividend cuts in the future. In other words, a dividend trap in the works.
When looking at ANZ Group Holdings Ltd (ASX: ANZ) shares today, one might wonder which of these camps the ASX bank stock falls into right now.
At first glance, the dividend yield on ANZ shares looks mightily compelling. At the current share price of $28.29 (at the time of writing), this big four bank was trading at a trailing dividend yield of 6.26%.
Unlike most other ASX banks, ANZ's dividends don't tend to always come with full franking credits attached anymore. But even so, ANZ's latest dividend, the upcoming 83-cent interim payment that investors will bag on 1 July, will be partially franked at 65%.
The previous dividend, the December final dividend of 94 cents per share, which contributes to the second half of ANZ's current yield, was also partially franked at 56%.
So that brings us to the crux. Is this high-yield ASX dividend stock a buy right now?
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Should you buy this 6%-yielding stock?
Well, looking at ANZ shares today, I think the answer to this question depends on what kind of investor one might be.
To start with, I don't believe ANZ shares are a dividend trap right now. Despite the high yield on display. It's normal for all ASX banks shares to trade with relatively high yields compared to other ASX blue chips.
What's more, ANZ is one of the big four banks. All four of these ASX stalwarts have mature business models, a loyal customer base, and established market share, honed over decades. They are also heavily regulated to ensure their own stability. All of these factors make ANZ's earnings base (from which it pays out its dividends) very robust.
As such, I think ANZ shares would be a great addition to any investor who primarily invests in ASX shares for dividend income. Yes, the bank doesn't offer fully franked dividends. However, its high starting yield would make it a valuable addition to any ASX dividend-focused portfolio.
Income but no growth?
However, saying that, I don't believe ANZ shares are a great buy right now for anyone who doesn't prioritise dividend income from their investments. Whilst ANZ shares do offer significant passive income potential, this bank does not have a strong history of delivering capital growth. To illustrate, today ANZ is trading at the same share price it was way back in January 2007.
Since ANZ is arguably one of the weaker members of the big four, I don't see the company turning this around anytime soon. Sure, ANZ has a robust and mature customer base. But I don't think the bank has what it takes to steal any meaningful market share from its competitors going forward.
As such, I don't think ANZ shares are a market-beating investment. It's my view that investors who are chasing absolute returns, and not just dividend income, would be better off looking elsewhere for their next investment.
