Australia’s big banks have “reset” their dividends, cutting their payout ratios to more sustainable levels as they face a weak outlook and demands from regulators for more capital.
While their dividend yields still look attractive, there is little prospect that big bank dividends will rise for some years.
Ausbil portfolio manager Michael Price says investors selecting shares for an equity income portfolio need to choose stocks that are likely to pay a growing dividend over time and not just a high yield currently.
Price says there is a common assumption that high dividend yields imply future earnings and dividend growth. He says the assumption does not hold.
Westpac declared a final dividend of 80 cents a share – down from the interim dividend of 94 cents.
The bank said it faced a “softer” outlook and the reduction was designed to bring the dividend payout ratio back to a sustainable level of 70 to 75 per cent.
The final dividend represents a payout ratio of 79 per cent but if a number of “notable items” (remediation and restructuring costs) are excluded the payout ratio falls to 71 per cent.
The interim dividend of 94 cents represented a payout ratio of 98 per cent.
The dividend represents a yield of 5.5 per cent, based on the bank’s closing share price of $29.64 on September 30.
NAB declared a final dividend of 83 cents a share, in line with the first half dividend. Total dividend for the year of $1.66 a share was down 32 cents from the previous year.
The payout ratio came down from 94.1 per cent in 2017/18 to 91.1 per cent. Excluding notable items (remediation and restructuring costs), the payout ratio came down from 82.6 per cent to 70.9 per cent.
NAB chief executive Phil Chronican said the lower dividend would add 20 to 25 bps to the bank’s capital position, which is a priority given demands for for stronger capital positions by regulators in Australian and New Zealand.
ANZ declared a second half dividend of 80 cents a share for the September half, unchanged from the first half.
The total payout for $1.60 a share was unchanged from the previous year. The dividend payout ratio was 70.1 per cent, compared with 71.1 per cent in 2017/18.
The final dividend will be 70 per cent franked, reflecting changes in the bank’s earnings mix.
Commonwealth Bank declared a final dividend of $2.31 a share for the June half – an increase of 16 per cent compared with the first half.
The total payout for the year, at $4.31 a share, was unchanged from the previous year. The dividend payout ratio rose from 80.4 per cent in 2017/18 to 87.6 per cent in the year to June.