Australian bank dividends will likely stay flat despite slightly higher payouts in the fiscal first half as lenders flagged pressures on cash earnings.
ANZ Group Holdings Ltd., Westpac Banking Corp. and National Australia Bank Ltd. (NAB) reported lower net profits for the October-to-March period, citing strong competition as a cause for margin pressure. ANZ's cash earnings fell to A$3.55 billion from A$3.58 billion, while NAB's cash earnings fell to A$3.55 billion from A$3.66 billion. Westpac's net profit was down 16% year over year to A$3.34 billion. Only Commonwealth Bank of Australia, which operates on a different fiscal calendar, reported a slight increase in cash earnings of A$5.03 billion in its first half ended Dec. 31, 2023, up from A$5.02 billion.
Despite lower profits, the banks declared higher interim dividend payments for the period, indicating their healthy capital and liquidity positions. ANZ declared an interim dividend of 83 cents per share, up from 81 cent per share in the prior-year period. NAB raised its interim dividend to 84 cents per share from 83 cents per share. Westpac's interim dividend rose to 75 cents per share from 70 cents per share and declared a special dividend of 15 cents per share. CBA's interim dividend increased to A$2.15 per share from A$2.10 per share.
"Looking ahead, we expect the banks to keep the dividends flat compared with the interim dividend, given that the interest rate environment would not change in [the] short term and the competition for loan book will remain intense," said Ralph Chen, senior research analyst, Asia-Pacific dividend forecasting at S&P Global Market Intelligence.
Boost for shareholder confidence
Market Intelligence forecasts ANZ, Westpac and NAB to keep their dividends flat through fiscal 2025. Full-year dividend at ANZ is expected to rise to A$1.67 from A$1.66 in fiscal 2024, Westpac's to A$1.69 from A$1.68 and NAB's to A$1.70 from A$1.69. CAB also expects total dividends for its fiscal 2025 to just slightly increase to A$4.57 from A$4.56 in the previous year.
"My view is that the handing out of the slight increase in dividends is for the bank to stabilize the confidence of the shareholders while the profits are declining across the board owing to the intense competition in mortgage market and persistent cost pressure," Chen said.
The banks' share prices ticked up after the announcements. "The banks have 'unquestionably strong' capital position and pretty healthy balance sheet, which makes the increases in payouts and top-up of buyback program affordable," Chen said.
Westpac, NAB and ANZ also announced capital management initiatives via share buybacks. Westpac announced a A$1 billion increase to its existing buyback plan to A$2.5 billion, while NAB increased its on-market buyback by A$1.5 billion. ANZ plans to buy back up to A$2 billion of shares, which is expected to reduce its common equity Tier 1 ratio by approximately 46 basis points.
Comfortable position
"The buybacks and even lifting dividend payout ratios to grow the ordinary dividend appears to reflect banks becoming increasingly comfortable that stress in the loan book is manageable, and that holding such high levels of provisions, and capital, is too conservative," Nathan Zaia, a senior equity analyst at Morningstar told Market Intelligence in an email.
NAB has been looking at ways to generate capital in excess of its dividend payout ratio, the bank's chief of finance, Nathan Goonan, said at the May 2 results briefing. "We've got a bias to buy back to reduce our share count, which is something that we've been well underway with and would like to continue to have that bias towards it, as it then relates to sort of generating that capital in excess of that dividend payout ratio," Goonan said.
At Westpac's May 6 earnings call, CEO Peter King indicated that the bank will likely keep dividends on the higher end of its payout ratio of 65% to 75%. In response to an analyst question about dividends staying at top end of the range, King said it is "probably the base case."
"We expect a modest margins improvement from current levels over the medium-term, and for bad debts to loans to rise back to historical averages," Zaia said. In that kind of setting, the banks should achieve low- to mid-single digit earnings per share and dividends per share growth, Zaia said.
