Shares in Australia and New Zealand Banking Group (ASX: ANZ) have had a disappointing 2015, with them falling by 11% year-to-date. However, as the company's recent trading update showed, it is making encouraging progress with its strategy and this is a key reason why it could be worth buying a slice of ANZ for the long term.
For example, ANZ's super regional strategy offers differentiated sources of revenue as well as excellent growth potential in the medium to long term, as the company attempts to take advantage of a lack of savings and other financial product penetration across Asia. In addition, ANZ's focus on expenses and on the management of capital appears to be a sensible strategy – especially since it reported a slight slowing across its key markets in the third quarter of the current financial year.
Furthermore, the decision to sell the Esanda dealer finance portfolio to Macquarie Group Ltd (ASX: MQG) for $8.2bn appears to be a sound move. That's because it allows ANZ to focus more on its core assets and to generate efficiencies across the assets which it feels offers the optimum risk/reward profile. Similarly, the sale of the New Zealand OnePath Life medical insurance business will also allow ANZ to focus on its core life insurance business moving forward.
Looking ahead, ANZ is well positioned to continue its market share gains and productivity improvements in the domestic market. And, with profit from Asia increasing by 25% in the last financial year, its pivot to faster-growing Asia markets appears to be working well alongside an improving revenue mix from more capital efficient products such as cash management within the Asia region.
In addition to a sound strategy, ANZ also offers excellent income prospects. For example, it has a fully franked yield of 6.3% which is 170 basis points higher than that of the ASX. And, while dividends per share are forecast to increase by just 1.8% next year, they are due to be covered a healthy 1.4x by profit. This, alongside the aforementioned growth potential in Asia, means that shareholder payouts could rise at a brisk pace over the medium to long term.
Furthermore, with a track record of increasing dividends per share at an annualised rate of 11.8% in the last five years, investors should have a degree of confidence in ANZ's commitment to raising dividends in future years.
Meanwhile, as well as a sound strategy and excellent income potential, ANZ continues to trade at a significant discount to the ASX, with it having a price to earnings (P/E) ratio of 10.9 versus 15.5 for the wider index and a rating of 12.4 for the banking sector. This indicates that an upward rerating is on the cards, with the most likely catalyst being the company's focus on Asia since this has the potential to transform its top and bottom lines in the coming years.
