Banks: the dividends keep on coming
CBA shareholders in search of increased dividends have cause for celebration as CBA’s first half earnings result was pleasing to say the least. Dividend per share (DPS) was up 12% at $1.83. Bank yields have been and continue to be the talk of the town for dividend hunters though some investors don’t realise how high. Investors that don’t have a good allocation to banks in their portfolio are missing out. This may be a once in the investment cycle opportunity.
CBA shareholders in search of increased dividends have cause for celebration as CBA’s first half earnings result was pleasing to say the least. Dividend per share (DPS) was up 12% at $1.83. Bank yields have been and continue to be the talk of the town for dividend hunters though some investors don’t realise how high. Investors that don’t have a good allocation to banks in their portfolio are missing out. This may be a once in the investment cycle opportunity.
With interest rates at record lows bank shares have become the quintessential yield play so we’ve looked at the historical dividends in a number of ways.
Bank dividend shares keep growing
The raw dividend numbers show that they have been more than just consistent. They have been growing.
Source: Market Vectors, Bloomberg
Bank dividends growth exceeds inflation
We calculated the compound annual growth rates over five years for each bank’s dividend and they are impressive. Most of them are well in excess of inflation (2013 average inflation rate was 2.45% with current inflation at 2.7% - Source: Reserve Bank of Australia), which is every income earner’s objective.
| Australian bank | 5yr Dividend Compound Annual Growth Rate (CAGR) (%) |
| ANZ | 9.96% |
| Commonwealth Bank of Australia | 9.81% |
| Westpac | 8.45% |
| Bendigo & Adelaide Bank | 7.53% |
| NAB | 5.41% |
| Bank of Queensland | 2.84% |
| Macquarie Group | 1.57% |
Source: Market Vectors, Bloomberg
Dividend yields are still above 5%
To get a sense of the capital cost you pay for this income we divided the 2013 dividend by the share price at the end of the bank’s respective financial year to give a dividend yield.
| Australian bank | 2013 Dividend Yield (%) |
| Bendigo & Adelaide Bank | 6.06% |
| Bank of Queensland | 6.04% |
| NAB | 5.54% |
| Macquarie Group | 5.38% |
| ANZ | 5.33% |
| Westpac | 5.32% |
| Commonwealth Bank of Australia | 5.26% |
Source: Market Vectors, Bloomberg
What about franking credits?
As good as all this looks, it hasn’t taken into account the franking credits. All of these dividends are franked. Most of them are fully franked. The true value to investors is that this is the equivalent of other income sources with as much as 43% higher nominal value.
This is unparalleled amongst any income choices currently available to investors.
Is it sustainable?
As a quick measure of the potential sustainability of this, we looked at the 2013 Dividend Payout Ratios which is generally determined by Total Dividends / Net Income.
| Australian bank | 2013 Dividend Payout Ratio (%) |
| Bank of Queensland | 106% |
| Westpac | 88% |
| Macquarie Group | 85% |
| NAB | 85% |
| Commonwealth Bank of Australia | 77% |
| ANZ | 71% |
| Bendigo & Adelaide Bank | 70% |
| Average | 83% |
Source: Market Vectors, Bloomberg
These could be considered in the normal range for high-yielding listed companies. Even the 106% is a point at which many companies find themselves from time to time in the investment cycle.
It’s all looking surprisingly good. A quick look at sustainability is reassuring but we will investigate this more thoroughly in future issues of Vector Insights. To find out about Market Vectors Australian Banks ETF (ASX Code: MVB) and its dividend yield click here.
Next week we will look at the political landscape and the financial system inquiry dubbed the ‘Murray Inquiry’ or ‘Son of Wallis’.
Important Notice
This information is prepared in good faith by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 (‘MVIL’) as the Responsible Entity and issuer of units in the Market Vectors Investments Australian Sector ETFs (‘the ETFs’). This information is general in nature and does not take into account any individual’s objectives, financial situation or needs (‘circumstances’). Before making an investment decision in relation to the ETFs investors should read the current product disclosure statement (‘PDS’) and with the assistance of a financial adviser consider if the ETFs are appropriate for their circumstances. A copy of the PDS is available at marketvectors-australia.com or by calling the Registrar on 1300 MV ETFS (1300 68 3837). Investors can buy and sell units in the ETFs on the ASX via a stockbroker or financial adviser. MVIL is a wholly owned subsidiary of Van Eck Associates Corporation based in New York (‘Van Eck Global’). The ETFs are subject to investment risk, including possible delays in repayment and loss of capital invested. Past performance is not a reliable indicator of future performance. Neither MVIL nor any other member of the Van Eck Global group guarantees the repayment of capital, the performance, or any particular rate of return from the ETFs.
The Indices are the exclusive property of Market Vectors Index Solutions GmbH (‘MVIS’), which has contracted with Solactive AG (‘Solactive’) to maintain and calculate the Indices. The ETFs are not sponsored, endorsed, sold or promoted by MVIS and MVIS makes no representation regarding the advisability of investing in the ETFs. Solactive uses its best efforts to ensure that the Indices are calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the Indices to third parties.
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Published: 09 August 2018
