ANZ stock is the highest-yielding ASX big four bank right now. Here's why

Why is ANZ's dividend yield so monstrous right now?

| More on:
a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX bank shares are often ASX investors' first choice when it comes to selecting a dividend share for income
  • Right now, ANZ's dividend yield is far larger than its big four peers, particularly Commonwealth Bank of Australia
  • ANZ shares have such a high yield because the bank trades at a low valuation compared to its stablemates

ASX bank shares have always been famous for their hefty dividends. As it stands today, this reputation seems likely to continue, with some truly massive (and fully franked) yields on display with the ASX banks at present. And no passive income investors will be more delighted than those who own ANZ Banking Group Ltd (ASX: ANZ) stock.

But let's backtrack a little. Right now, Commonwealth Bank of Australia (ASX: CBA) shares offer the lowest income to investors as it currently stands. Today, CBA shares have a trailing dividend yield of 4.32%, coming from CBA's past two dividend payments of $2.10 each.

The other ASX big four banks have far more to offer in terms of income right now though. The National Australia Bank Ltd (ASX: NAB) dividend yield is currently sitting at 6.34%. That stems from NAB's past two dividend payments of 78 cents and 83 cents per share respectively.

Westpac Banking Corp (ASX: WBC) has an even higher trailing dividend yield on the table. Its shares are sporting a yield of 6.54%. That's courtesy of the 70 cents per share and the 64 cents per share dividends this bank has forked out over the past year.

But let's get to ANZ stock. So ANZ, as we've already revealed, currently has the highest trailing dividend yield out of the big four. Plugging in ANZ's December final dividend of 74 cents, as well as the upcoming interim dividend of 81 cents per share, into the current (at the time of writing) ANZ share price of $23.03, and we get a dividend yield of 6.73%.

Why is ANZ stock's dividend yield so high compared to CBA and the other bank shares?

That comes fully franked too, so we can gross up that yield all the way to 9.61% if we include the value of those franking credits.

But this begs the question: why is ANZ's dividend yield so high compared to its ASX bank share peers?

Well, the first place to look is ANZ's price-to-earnings (P/E) ratio. A company's price-to-earnings ratio tells us how expensive a company's shares are compared to its peers. If a company's P/E ratio is higher than its peers, it tells us that investors are willing to pay more for $1 of earnings for that company than from another company with a lower P/E ratio.

As it stands today, CBA is the clear winner when it comes to P/E ratios out of the big four, with a current ratio of 16.58. This explains why CBA's dividend yield is significantly lower than the other ASX banks. The higher a company's share price relative to its dividends per share, the lower its dividend yield will be.

Westpac and NAB currently sport P/E ratios of 11.61 and 11.11 respectively. That probably explains why these banks have such similar dividend yields. But ANZ is by far the cheapest bank from a price-to-earnings ratio perspective right now. ANZ stock currently has a P/E ratio of just 9.95.

That tells us that investors are willing to spend almost twice as much for $1 of earnings from CBA as they are from ANZ. So no wonder this ASX bank stock's dividend yield is currently so high compared to the other big four bank shares.

Motley Fool contributor Sebastian Bowen has positions in National Australia Bank. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Bank Shares

ASX banking sector: Is it time to consider a regional bank?

The big 4 banks are widely considered to be overvalued.

Read more »

A person leans over to whisper a secret to a colleague during a meeting.
Bank Shares

Here are the latest growth forecasts for the CBA share price

Can the bank continue rising? Here are some expert views.

Read more »

A businessman presents a company annual report in front of a group seated at a table
Bank Shares

Earnings season predictions: Macquarie weighs in on the big 4 banks

What are the broker's predictions?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Major CBA investor reveals why he's all in

This investor described one major reason driving his investment in CBA shares.

Read more »

Young investor sits at desk looking happy after discovering Westpac's dividend reinvestment plan
Bank Shares

Invested $10,000 in Westpac shares 2 years ago? Guess how much you've already banked!

Atop their regular dividend payments, Westpac shares have enjoyed a strong two-year run.

Read more »