Australia's too-big-to-fail banks have had a rough couple of weeks…
Since the beginning of September, their share prices are down anywhere between 6.4% and 8.07%.
The worst hit has been National Australia Bank Ltd. (ASX: NAB), followed by Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ).
So is this your opportunity to buy in cheaply?
It's a tough question and depends who you ask. Shareholders, investors and money managers are likely to each give you a different answer.
However their answers will likely depend on their priorities. That is, whether they seek capital gains or regular income.
For example The Australian Financial Review today quoted Shannon Rivkin, investment director at Rivkin Securities, who is telling clients to buy ANZ, NAB and Westpac. These banks are expected to pay three lots of dividends in the next 13 months with, "net yields as high as 9.80 per cent or 13.5 per cent where franking credits are included."
"We are suggesting to clients to buy an equal portion of all those stocks and take advantage of the yield," Mr Rivkin said.
Indeed, there's certainly reason to be bullish on the banks in the short term. Interest rates remain low, the property market is riding high and they have proven to be excellent investments, historically.
However, Hyperion portfolio manager Joel Gray says otherwise. "We believe the banks are fully priced… They are on attractive near-term dividend yields but strong capital growth is unlikely so your total return outlook from owning banks, which is the most important measure, not just dividend yield, looks subdued."
Buy, Hold, or Sell?
As a long-term investor (10 years plus) who wants capital gains and growing dividend yields, I believe none of the banks are cheap at today's prices, despite falling as hard as they have. In time, I could be proven wrong. However, as I've been saying for the past 18 months, ANZ is the only bank which I think has the earnings growth potential to justify its current valuation (probably why it hasn't fallen as hard as its peers over the past six weeks!), but even it isn't cheap.
