Could Australia and New Zealand Banking Group (ASX: ANZ) shares be an unloved dividend opportunity with everything that’s happening with COVID-19?
The ANZ share price is down 28% since the pre-COVID-19 crash level. But that doesn’t automatically mean it’s good value. Something can go down and be expensive, or go up and be cheap.
What has happened recently?
Many thousands of borrowers are still on payment holidays as banks give their customers some slack to get through this period of economic (and health) disruption. But banks have all be increasing their credit provisions in the expectation that some borrowers won’t be able to pay back their loan.
This can be seen from the recent FY20 result. ANZ reported that its cash profit fell 41% to $3.66 billion. Cash profit from continuing operations fell slightly more, down 42% to $3.76 billion. In terms of the statutory result, net profit fell by 40% to $3.58 billion.
ANZ explained that the profit decrease was primarily driven by full year credit impairment charges of $2.74 billion. This was up from $795 million last year because of the impact of COVID-19 and a first half impairment of Asian associates of $815 million, also related to the pandemic.
Whilst its CET1 capital ratio remained strong at 11.3%, the net interest margin (NIM) continues to trend downwards. It reported that its continuing operations saw the NIM decline from 1.69% at the end of the first half of FY20 to 1.57% at the end of the second half.
So is it an opportunity?
ANZ is going to pay a final dividend of $0.35 per share. When added to the deferred interim dividend of $0.25 per share, that brought the total dividend for FY20 to $0.60 per share. That represents a cut of 62.5% from FY19.
Looking at ANZ’s current dividend yield of 4.4% (when grossed-up for franking credits), that’s certainly not an exciting dividend. But that’s keeping the dividend payout ratio quite low – as per APRA’s guidance. The key will be whether ANZ’s profit can return to FY19 levels sooner rather than later. Will there be lots of bad debts? Or will a recovering housing market help mitigate that threat? Things are looking better for ANZ, so it could be a decent medium term buy if Australia’s COVID-19 problems are over.
But there are other ASX dividend shares I’d rather buy first like Brickworks Limited (ASX: BKW) which I wrote about here. I just don’t see ANZ offering much long term compounding profit growth, after an shorter term recovery to normal conditions.
