Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) are top picks when retail investors are looking to generate higher returns than they can get in term deposits, and who doesn't love their fully franked dividends?
After writing earlier about several issues that could see bank share prices turn south, let's take a look at some reasons why investors may want to buy the big four banks' shares today.
- Their high fully-franked dividend yields. With the rise of self-managed super funds (SMSFs) and their 15% tax rate, fully-franked dividends are one of the great ways for retail investors to generate high post-tax returns.
- Their total domination of Australia's residential property market. Between them, the big four banks control more than 80% of loans for housing. Since the GFC, their share has increased, and it's almost impossible for other lenders to get a look in.
- Their 'too big to fail' status and implicit government guarantee. All four banks have top level credit ratings, allowing them to source funds at ultra-cheap prices, and certainly at much better prices than Australia's second-tier banks such as Bank of Queensland Limited (ASX: BOQ). That gives them a significant advantage.
- Their control of Australia's largest retail superannuation funds, along with a vast majority of Australia's financial advice industry. Try finding a financial planner that is not aligned with either the big four banks or AMP Limited (ASX: AMP).
- Their position in Australia's financial system means they can exert a lot of pressure on governments and companies to extend their dominance even further.
While they may look attractively to investors now, shareholders need to be aware of the risks as well.
