Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
Out of the big four banks of ANZ, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB), ANZ is the only major bank that is currently doing a share buy-back, which says its balance sheet is in a good state.
Indeed at the end of its FY18 result, being 30 September 2018, ANZ revealed that its Common Equity Tier 1 (CET1) ratio was 11.4%, substantially higher than the "unquestionably strong" level required by APRA.
ANZ also reported that its credit equality improved during FY18 with the total credit impairment charge as a percentage of average gross loans and advances (GLAs) dropping from 0.21% in FY17 to 0.12% in FY18.
So, although CBA and Westpac may be considered as higher quality banks compared to ANZ, some of the metrics actually say that ANZ is in better shape. ANZ is well positioned.
However, ANZ has been the only bank since the GFC ended to cut its dividend, which wasn't great for income-seekers at the time, but it helped ANZ improve the sustainability of the dividend.
Despite FY18 continuing cash earnings per share (EPS) declining by 4% to 223.7 cents, ANZ's dividend payout on those earnings was only 71.6%.
However, what wasn't a good sign was that the return on equity (ROE) for ANZ's continuing operations declined by 67 basis points to 11% and the return on average assets fell 6 basis points to 0.72%.
Foolish takeaway
ANZ is currently trading at just over 11x FY19's estimated earnings with a grossed-up dividend yield of 8.6%.
ANZ does look cheap, it might be a market beater over the next couple of years, but only if the Australian housing market doesn't keep dropping for 1% a month or more, for a sustained period.
