Treasure Chest: Bank Dividend Bonanza

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            [0] => ((NAB))
            [1] => ((WBC))
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            [0] => NAB
            [1] => WBC
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This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

FNArena will soon add a new section to the news stories on its website, Treasure Chest, where we will combine trading and investment ideas as proposed by the experts in financial markets, worldwide. The story below has been published in pre-launch format and might serve as an example of the types of stories this new section will offer.

By Greg Peel

Three of Australia's Big Four banks – ANZ Bank ((ANZ)), National Bank ((NAB)) and Westpac ((WBC))- close their accounts in September, which puts them at odds in a timing sense with most Australian companies and with the Commonwealth Bank ((CBA)). NAB will report its FY11 result on October 27, Westpac on November 2 and ANZ on November 3.

At the same time the three banks will each announce their final dividends representing the second half. Each stock will then go “ex-dividend” three to four weeks later.

FNArena has been pointing out for some time now just how attractive Australian bank dividend yields have become since the recent Europe-related market sell-off, and we've hardly been alone. The yields to which we refer are, of course, forecasts only which are estimated by analysts based on their own earnings forecasts and the bank's recent payout ratio. In other words those yields are no more than estimates. In 2008-09, the banks cut their dividends, diluted capital with raisings and reduced payout ratios as they shifted earnings into bad debt provisions. Forecast yields were thus also dramatically impacted.

While there has been much fear surrounding the recent European crisis, and talk that Greece might become “the new Lehman”, Australian banks are in a much better position today than they were in 2008. They are very well capitalised, are looking at low but nevertheless reliable earnings growth, still have provisions on board and have no direct exposure to European sovereign debt. Bank share prices are, nevertheless, subject to international market forces.

If we assume Australian bank stocks do not now have much further to fall, meaning we can see a resolution in sight for Europe, then we can feel safer that yields offered by buying bank stocks today will not be much further undermined by falls in share prices. On that basis, and noting the three banks that will shortly go ex-dividend (not CBA), more than one stockbroker has recently pointed out an attractive opportunity for the medium or plus-term investor (as opposed to short term traders).

Investors who buy the relevant bank shares ahead of the ex-date will be able to collect three dividends in a thirteen month period. FNArena has calculated a forecast yield over that period. To arrive at the forecast yield, we take the average of the discreet dividend forecasts of the eight major brokers in the FNArena database for FY11 and FY12 and add them. Subtracting the known half-year dividend paid by each bank in June leaves us with a net three divided payment forecast.

We then divide that discreet amount by Friday's closing share price which provides the following thirteen month yields: ANZ 10.9%, NAB 11.5% and Westpac 11.1%.

Note that these yields do not take into account franking, which in the case of each bank is 100%.

Note that were bank shares to rally in the period, those yields will effectively improve at each payment for the investor who buys today.
 

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