Are the Big Four banks still top dividend stocks?
The major banks have scrapped or cut dividends as COVID-19 pressures mount. How do they compare?
This guide is sponsored by International Capital Markets Pty Ltd (IC Markets) AFSL 335692, an industry-leading Forex CFD Provider. Trade with spreads as low as 0.0 pips, trusted by hundreds of thousands of traders worldwide. Find out more.For a long time, the Big Four banks – ANZ (ANZ), CommBank (CBA), NAB (NAB) and Westpac (WBC) – have been among the best dividend paying stocks in Australia. On top of having high yields, they're also less volatile than other top Aussie blue chips such as our major miners.
As an example of their value, if you'd invested $20,000 in CBA back at the start of 2010, by now you'd have earned more than $30,000 in dividends alone, without ever needing to have sold any stock.
Dividends are a portion of company profits that some companies choose to pay to their shareholders. With Australian dividend yields among the highest in the world, they're a popular choice among long-term investors here.
But since entering a recession in 2020, Australia's major banks have been forced to slice or cancel dividend payments in order to shore up profit against COVID-19 pressures.
The question facing investors, many who rely on dividends as a source of income, is whether the banks are still the best bang for buck for their portfolios.
What dividends have the banks paid so far?
A lot has changed in the last six months so it pays to run over what the banks have already paid and what they're paying moving forward.
In April, APRA – Australia's corporate watchdog – called on the major banks to consider deferring dividends as a means of protecting themselves against challenges caused by COVID-19.
Since the health of the banking sector is vital to ensuring our economy keeps ticking along, the announcement wasn't entirely unexpected.
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Read more…While CBA had already paid its full interim dividend of $2 in March, both ANZ and Westpac deferred theirs (due May and July) until further notice. NAB followed by slashing its July interim dividend from 80 cents to 30 cents per share.
Then in late July, APRA eased its earlier stance by saying that banks could offer dividends so long as they didn't pass on more than 50% of company profits in payments.
What are the banks' upcoming dividends?
The latest guidance from APRA was generally good news for shareholders, though the response from the banks has been varied.
Amid reporting season results, CBA allayed the fears of investors by announcing a final dividend of $0.98 per share – meeting APRA's guidance at just under 50% of profits.
While the dividend is 30% lower than previous years, as the only major bank not to reduce or defer its interim dividend, there had been some concerns the major bank would scrap its final dividend altogether.
Meanwhile, ANZ announced last week that its deferred interim dividend would be paid on 30 September at a reduced rate of $0.25 per share – down from last year's interim payment of $0.80.
Big Four banks 2020 dividends
| Interim dividend | Final dividend | Forward P/E | |
|---|---|---|---|
| ANZ | $0.25 | TBA | 14.15% |
| CBA | $2 | $0.98 | 16.39% |
| NAB | $0.30 | TBA | 14.05% |
| Westpac | $0 | TBA | 16.30% |
Shareholders will need to wait until November before they find out if both ANZ and NAB are paying a final dividend, historically due in December.
Westpac is the only bank to scrap its interim dividend entirely, saying the outlook amid COVID-19 remains too uncertain.
Partly due to timing, CBA shareholders have come out the least scathed with a full-year dividend of $2.98 per share. While ANZ and NAB have chosen to pay their interim dividends, we won't know for another three months what their decision is around a final dividend.
Meanwhile, Westpac shareholders will be waiting anxiously to see whether they get any dividend at all this year when the bank releases its full-year results on 2 November.
How do the banks compare?
Despite COVID-19-related challenges, not all companies have reduced or scrapped dividends this year.
Among the Australian major blue chips, healthcare favourite CSL (CSL) announced last week its highest dividend payment yet at $2.95 per share (full-year) amid a 10% profit increase from the year before to US$2.1 billion.
Iron ore giant Rio Tinto (RIO may have disappointed some shareholders by not offering a special dividend this year, though its interim dividend of $2.15 is still above Rio's historical interim payment and it maintains a high yield of 5.62%.
Meanwhile, mining giant BHP Group (BHP) will pay a total dividend of US$1.20 a share, down from US$1.33 the year before, keeping a yield of 4.59%.
Retail conglomerate Wesfarmers (WES) has also seen earnings and revenue increase in the last financial year, with profit after tax rising by 8.2%. Last week it declared a flat interim dividend of $0.77 plus a special dividend of $0.18 thanks to its interest in Coles Group.
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Read more…With Telstra's (TLS) profits down 14% from the year before thanks to NBN and pandemic-related pressures, it's somewhat a miracle the telco declared a full-year $0.16 dividend per share, unchanged from last year. However as NBN headwinds mount, there are questions around whether Telstra can maintain a dividend moving forward.
Other dividend-paying blue chips, Woolworths Group (WOW) and Macquarie Group (MQG) have yet to report.
While bank dividends have been among the worst impacted by the recession, they're not off the table yet. CBA especially has maintained a strong dividend this year, although time will tell whether that remains the case.
We'll also need to wait for the latest on full-year payments from ANZ, NAB and WBC, which publish their full-year profit reports at the end of the year.
Until then, investors are likely to be keeping a careful eye on the next set of results as we continue into earnings season.
For a list of top dividend stock ideas, check out our Best dividend stocks of 2020.
How to invest in dividends
To build a portfolio of dividend stocks, you'll need to open a brokerage account.
The easiest and cheapest way to do this is through a share trading platform. To invest in Australian dividend stocks, you'll need to make sure you pick one with access to the Australian Securities Exchange (ASX).
Once you open an account, you can search for your stock of choice by searching for the company name or stock code.
Depending on the platform you pick, you'll typically have the option of buying at the latest price or entering your desired price through a limit order.
To find a list of online brokerage accounts and other investment ideas you can head to our share trading homepage.
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