The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price had a top day yesterday, along with all of the ASX banking shares.
At the time of market close, ANZ shares were up 2.12% to $18.45 a share. Even after yesterday's rise, ANZ shares remain a lot closer to the bottom of their 52-week range ($14.10) than the top ($28.79).
At the time of writing, shares are $18.48, so are ANZ shares a buy today?
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Is the ANZ share price still cheap?
So why were ANZ shares in hot demand yesterday? Well, it was the Australian Prudential Regulation Authority's (APRA) relaxing of the rules… sorry, 'expectations' surrounding the payment of dividends that got investors riled up for ASX bank shares.
The new 'expectation' is that banks and other ASX financial companies must aim to pay out a maximum of 50% of their earnings in dividends. Previously, APRA had told banks to keep a lid on dividend payments until the fog from the current economic outlook cleared. This was done in order to make sure the Australian financial system had enough of a buffer to withstand whatever the coronavirus-induced economic crisis throws its way.
Clearly, APRA is seeing enough certainty that it doesn't see any problems with modest dividend payments from our major banks. And that's why ANZ, along with the rest of the ASX banking shares, were on investors' buying lists yesterday.
Is it time to buy ANZ?
Although the news yesterday will be welcomed by income investors, it is worth noting that it is likely to be some time before dividends from ANZ and the other banks return to the levels investors have become accustomed to.
Prior to 2020, it was common for ANZ and the other banks to pay out as much as 80–90% of their earnings as dividends. A 50% cap will obviously not allow this situation to return. So it will be some time (in my view) before ANZ shareholders start seeing 80 cents per share payouts once more.
Even so, is there still a buy case for ANZ at its current price, which is still historically very low?
I'm not convinced. Economic growth is probably going to be very sluggish for many months, even years. In all likelihood, that means there won't be any real growth in demand for credit and loans – which is how a bank makes money. Further, once the banks stop allowing deferral of mortgage payments, it's possible that some distressed loans will be defaulted on. That's very bad news for a creditor like ANZ.
Finally, it looks as though interest rates will be at record lows for some years yet if the Reserve Bank of Australia's indications are to be believed. Banks don't tend to be able to produce healthy profits in a low-rate environment. There's not much fat on a 2.5% mortgage, after all. And bank customers don't tend to respond well to receiving interest rates of 1% or less on their savings and term deposits.
Foolish takeaway
I think banks like ANZ will be fine over the long-term as our economy slowly recovers from the pandemic over the next few years. But I don't think there's enough upside to justify an investment into ANZ right now. Thus, I'm tipping there are better places to have your capital today than ANZ shares.
