Which ASX bank share I'd buy for dividends

I'm cautious on some bank stocks for dividends, here's why.

ASX bank shares can be a great source of passive income in the form of dividends, but their valuations don't seem as appealing these days.

The recent strength of bank share prices is great for long-term shareholders, but it has reduced the potential of near-term dividend yields. When a share price goes up, new investors won't get as high a dividend yield.

For example, if a company has a dividend yield of 5% and its share price jumps 20%, the dividend yield falls to 4.2%.

That effect has happened with the major ASX bank shares in the last 12 months.

A woman looks questioning as she puts a coin into a piggy bank.

Image source: Getty Images

Major ASX bank share yields get pushed down

  • Shares in Commonwealth Bank of Australia (ASX: CBA) are up 42%
  • The Westpac Banking Corp (ASX: WBC) share price has climbed 40%
  • National Australia Bank Ltd (ASX: NAB) shares are trading 26.6% higher
  • The ANZ Group Holdings Ltd (ASX: ANZ) share price lifted 13%.

Using the estimates for Commsec, these are the following forecast grossed-up dividend yields for the ASX bank shares in FY25 (including ANZ's lower franking level).

  • CBA could have a grossed-up dividend yield of 4.3%.
  • Westpac could have a grossed-up dividend yield of 6.5%.
  • NAB is projected to have a grossed-up dividend yield of 6%.
  • ANZ is forecast to have a grossed-up dividend yield of 7%.

Those yields aren't terrible, but they're not as attractive as they once were.

There's another bank that appeals to me more for passive dividend income.

MyState Ltd (ASX: MYS)

This is a relatively small, Tasmania-based banking business with a history stretching back more than 65 years. It offers various products, such as bank accounts, term deposits, loans, and insurance.

MyState's merger with Auswide Bank Ltd (ASX: ABA) was recently approved. Based on FY24 figures, this significantly diversifies the geographical footprint of its loans, with 20.6% in Tasmania, 20% in Victoria, 34.4% in Queensland, and 18.2% in NSW.

The exposure to Queensland is appealing to MyState because of "strong fundamental growth drivers."

The combined business will have "improved scale and operating efficiency with a stronger and larger balance sheet and increased funding flexibility." It can invest in profitable growth opportunities, enhance the digital customer experience, improve data, regulatory, risk management, and cybersecurity, and invest in people and systems.

The ASX bank share is expected to achieve pre-tax cost synergies of between $20 million and $25 million per year.

The valuation and dividend yield look very appealing to me. According to the forecasts on Commsec, the MyState share price is valued at 13x FY25's estimated earnings with a forecast grossed-up dividend yield of 7.5%.

The Commsec projections then suggest profit could rise by 16% in FY26 and it could pay a grossed-up dividend yield of 8.1% in FY26.

Those numbers look attractive to me, with good prospects of growth in the medium term.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Man typing on his laptop with a coffee mug at the side.
Bank Shares

Should smart investors be buying NAB shares?

I dig deep to see whether the recent pullback has made this major bank worth buying.

Read more »

A young boy sits on top of a big rubber bouncing ball with handles as he smiles a toothless grin at the camera and bounces above the ground in a grassy field with a blue sky.
Bank Shares

ANZ shares rebound 12% from a 52-week low: Buy, hold, or sell?

ASX bank shares, including ANZ, have faced strong headwinds in 2026.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Bank Shares

If I buy $6,000 of Westpac shares, how much dividend income will I receive in 2027?

Let’s look at the dividend outlook for Westpac shares…

Read more »

Bank building with the word bank in gold.
Bank Shares

If I invest $15,000 in NAB shares, how much passive income will I receive in 2027?

Is NAB a strong option for dividends?

Read more »

Happy young woman saving money in a piggy bank.
Bank Shares

How many CBA shares do I need to buy for $10,000 of passive income?

The banking giant is popular with income investors for a reasons.

Read more »

couple happily discussing their issues with a banker
Bank Shares

Bendigo and Adelaide Bank vs Bank of Queensland: Which is better value?

Comparing Bendigo and Adelaide Bank vs Bank of Queensland shares: which regional bank looks better value on recent fundamentals and…

Read more »

Four business people wearing formal business suits and ties walk abreast on a wide paved surface with their long shadows falling on the ground ahead of them.
Bank Shares

Westpac vs Macquarie Group: Which bank is better value now?

Westpac vs Macquarie Group: which bank share offers Aussies better value for October? Here’s how the heavyweights compare on dividends,…

Read more »

Australian dollar notes in businessman pocket suit, symbolising ex dividend day.
Bank Shares

If I invest $8,000 in CBA shares, what passive income could I earn in FY27 and FY28?

Brokers aren't too bullish about the outlook for the bank shares over the next 12 months, but its passive income…

Read more »