There are plenty of ASX bank shares to consider for dividends. But which one is the best?
There are the big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and Australia and New Zealand Banking Group (ASX: ANZ).
Then there’s the regional banks of Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd (ASX: SUN) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
You could also count the Tasmanian business MyState Ltd (ASX: MYS) as a regional bank.
Finally, there’s Macquarie Group Ltd (ASX: MQG).
Which one is the best for dividends?
For me, you can’t separate the dividend considerations from the profit thoughts.
A dividend is only as secure as the long term profit.
All the banks suffered from COVID-19 impacts during 2020. They have all provided for potential bad debts that could occur from the recession that Australia is going through.
The credit provisions caused all the banks to cut their dividends in FY20. APRA also told the banks that they were only allowed to pay up to 50% of their profit out as a dividend.
What about the future dividends?
APRA recently said to banks that they can pay higher dividends again, if they want to, but the boards should still be prudent with their capital.
I expect that the FY21 dividends from most banks will be materially higher than FY20, however it will probably be substantially lower than FY19.
The best way for banks to increase the dividend, beyond just increasing the dividend payout ratio, is growing profit.
It’s going to be difficult to grow the profit in the medium-term because the banks’ net interest margin (NIM) is under heavy pressure because of the strong competition from various players, and the extremely low central bank interest rate.
I think that one of the ASX banks I mentioned is a clear winner from it comes to potential profit growth and dividend growth: Macquarie.
The investment bank has global earnings, which isn’t reliant on lending out loans at low margins.
The world is likely to invest in green initiatives and infrastructure to try to grow the economy in the face of the COVID-19 impacts. Macquarie is exposed to both of these themes with its infrastructure management division as well as the Green Investment Group.
Using the latest Macquarie share price, it’s priced at 16 times the estimated earnings for the 2023 financial year, using CommSec numbers. In FY23 it’s projected to pay a dividend of $5.93 per share, which equates to a forward partially franked yield of 4.3%.
In the financials space I also like some fund managers, particularly Magellan Financial Group Ltd (ASX: MFG).
