As with most ASX bank shares, investors usually buy ANZ Group Holdings Ltd (ASX: ANZ) shares with the expectation of receiving fat dividend payments.
Most ASX shares also provide full franking credits alongside their dividends. However, ANZ fell off that wagon a few years ago, and now only usually pays partially franked dividends. This reflects the bank's international earnings base relative to its peers.
Perhaps reflecting this reality (or perhaps reflecting pessimism regarding its future), the ANZ share price trades on a far higher dividend yield against the other big four banks.
To illustrate, ANZ shares are, as of yesterday's close, trading on a hefty trailing dividend yield of 5.8%. In contrast, National Australia Bank Ltd (ASX: NAB and Westpac Banking Corp (ASX: WBC) only offer yields of 4.28% and 4.43% respectively. Commonwealth Bank of Australia (ASX: CBA) is a distant laggard with a rather puny (for bank standards anyway) yield of 2.52%.
So naturally, income investors might be flocking to ANZ shares over the competition to secure that higher yield.
However, shares are often priced with a high dividend yield relative to their competitors for a reason. So could ANZ be about to slash its dividend?
Could a dividend cut for ANZ shares be on the table?
Unfortunately for ANZ investors, one ASX expert thinks that could be on the table.
As we reported earlier this week, brokers at UBS have just cut their rating on ANZ shares from 'neutral' to 'sell'. UBS has given the bank a 12-month share price target of $26.50, well below the current $28 price tag.
UBS' primary concern is that the new ANZ CEO, Nuno Matos, will focus on building out ANZ's cash reserves as he stamps his mark on the bank. This could be at the expense of earnings growth, hence the downgrade.
However, if ANZ does go down this path, it could also lead to a dividend cut for investors, perhaps up to 25%. After all, it is difficult for a company to build out its cash reserves and increase its dividends at the same time.
If ANZ investors do face a dividend cut, it would be significant. None of the four major banks has cut their dividends since the pandemic. It would also potentially bring ANZ's running yield down to match that of Westpac and NAB, erasing the edge the bank currently enjoys.
Then again, perhaps investors have already factored in a cut.
Let's see if UBS' prediction plays out.
