Why ANZ’s Latest Dividends are So Disappointing for Shareholders

ANZ [ASX:ANZ] posted their half year results this morning. It was a mixed bag for the bank. On one hand, cash profits went up $3.68 billion, or 4.6%. Net profit was up 3% to $3.51 billion. Analysts from Morgan Stanley had only expected a $3.63 billion cash profit.

On the other hand, shareholders won’t be getting the dividend they may have expected. Analysts were expecting a higher dividend payout ratio. Instead, it was 0.2% lower than this time last year, and 8.1% lower than the half leading up to September. ANZ will pay a dividend of $0.86 per share on 1 July. Also, expenses outpaced revenue growth by 1.9%. Expenses went up 7% to $4.6 billion, but income only went up 5% to $10.2 billion.

What caused these results?

ANZ’s payout ratio is lower because of their capital planning needs. They need to keep enough money to fund growth. The media release accompanying the statement said that their capital strategy balances expenses with things like adjusting to regulatory requirements.

The strategy also helps to fund growth.

ANZ is investing in expansion and future-proofing. CEO Mike Smith said:

We are investing heavily in areas of future profitability…[We are] increasing the pace of execution of our Super Regional strategy within IIB so we continue [to benefit] from growth opportunities in Asia.

Ongoing investment is being made to position ANZ for the future. We are managing expenses carefully, however we have been prepared to accept a slightly higher run rate on costs in the short term where investment can deliver sustainable growth and returns [such as] customer technology platforms, growing our geographic foot print in both Australia and Asia, and more customer-facing bankers.’

In other words, expenses are up now so that revenue can be up in the future. They’re putting money into things like fixing their IT systems, because ‘modernisation of our IT infrastructure is enabling the Group to process record volumes while maintaining high service quality and operational efficiency’.

Also, their Asia strategy has drawn criticism in the past. Some analysts say Asia doesn’t give enough returns, especially compared to Australia. But profit for the region including Asia was up 18% compared to last half.

What’s next for ANZ?

Smith hinted that growth would be subdued for a while. He said that ‘For the foreseeable future, we will be operating in a lower growth environment in which there will continue to be occasional volatility and shocks’. What this means is that investors and analysts shouldn’t take the optimism in his other statements too seriously. All those savings ANZ is making through simplification and efficiency could be wiped out thanks to those ‘shocks’.

But the market didn’t seem to mind. ANZ shares opened at $34.20 today, up from a close of $33.29 yesterday. At the time of writing, they’re up 3.49% to $34.40.

(Source: Google Finance)
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If you have shares in ANZ, at least you can take comfort in knowing that ANZ beat the analysts’ profit forecasts.

Eva Mellors,
Contributor, Money Morning

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