Market volatility creates opportunities for savvy investors.
And, today, an exceptional opportunity may be arising for investors who have an eye for income. More specifically, dividends.
Indeed, shares of Australia and New Zealand Banking Group (ASX: ANZ), our fourth largest bank, are currently being forecast by analysts to offer a fully franked dividend equivalent to 6.76% in the coming year.
6.76% fully franked is financial gobbledygook for a yield comparable to term deposits of 9.6%.
A grossed-up dividend yield, as it is known, of 9.6% is almost unbelievable in the current 2% interest rate environment.
So I know what you're thinking…
Surely, it is too good to be true? How can it pay that much out as dividends? That's 300% more than term deposits, isn't it?
With many 12-month term deposits paying around 2.6% per year, 300% is probably an understatement.
And there is a catch: Share prices.
The reason ANZ shares are offering such an enormous dividend yield can be put down to its plummeting share price.
Just imagine all those poor souls who bought ANZ shares six months ago for their 'big' dividend yield – shares have since fallen 25%.
But the sharemarket is a funny ol' place because as share prices fall, they usually become a safer investment.
ANZ Dividends per Share over 10 Years
Source: ANZ annual reports.
However, there's no guarantees in this game. And ANZ shares may have further to fall yet.
Personally, I think an investment in ANZ today is a very risky one – unless you're prepared to invest for the long term (10 years or more).
As the above graph demonstrates, in addition to share prices, the amount of dividends paid to shareholders can swing dramatically from year to year.
The trick is to focus on buying great businesses first and foremost, and if they offer a dividend it's a bonus.
While ANZ's dividend appears too good to ignore, I'm waiting for a lower price before hitting the buy button.
