Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy after falling 11.5% over the past six months?
It certainly has had the pleasing impact of boosting the trailing grossed-up dividend yield to 8.9%, which offers an excellent level of income. If you wanted a high yield, would you go for the ANZ share yield or one of the ANZ bank savaing account interest rates?
However, ANZ shares are not bonds or term deposits, they don't offer guaranteed levels of dividends as much as ANZ management would like to continue the 160 cents per share dividend every year.
ANZ has reduced its dividend in recent history. In 2015 it paid a $1.81 annual dividend per share and since then it has dropped the annual dividend to $1.60 per share. Unfortunately, it is the only big bank to reduce its dividend since the end of the GFC.
National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) may not have grown their dividends much over the past decade, along with several years of maintained dividends, but at least there haven't been any cuts.
FY18 wasn't an inspiring year with the total cash profit dropping by 16% and continuing operations cash profit falling by 5%. One positive was the CET1 ratio increasing by 87 basis points to 11.4%.
The Royal Commission cost ANZ $55 million in FY18 in external legal costs as well as recognising $377 million of refunds to customers and related remediation costs in the second half of the year. There could be more costs in FY19.
Competition in the banking sector is intensifying. That's one of the reasons why the net interest margin (NIM) has fallen in recent years. The launch of digital bank Volt, as well as other neobank competitors, could see ANZ lose a small amount of customers. Or at least it could stunt growth.
Foolish takeaway
Until the Australian house price falls stop and we learn of the official Royal Commission recommendations I don't think ANZ is a buy. It does look cheap trading at around 11x FY19's estimated earnings, but cheap can turn to expensive if the earnings drop.
