The Australian ‘Big Four’ — Australia And New Zealand Banking Group Limited [ASX:ANZ], National Australia Bank Limited [ASX:NAB], Westpac Banking Corporation [ASX:WBC] and Commonwealth Bank of Australia [ASX:CBA] are all seeing declines today, an unusual trend to see all at once. NAB and ANZ are the worst performing at time of writing, down 1.51% and 0.95% respectively.
These four all being in the red may come as disheartening news for followers. It has dragged the rest of the market down with them. But with no correlating news to the drop, there should be no need for panic.
That being said, let’s analyse this deeper…
A closer look at the big four
Maybe this is a sign of something much more sinister.
If you’ve been paying attention to what we’ve been reporting here at Money Morning, you’d know that we believe the declines we are seeing in the economy are far from over. And with the recent unfolding of the royal banking commission, maybe these drops are the start of something more to come.
That being said, the banks didn’t drop nearly as much as was expected on the day of the report’s release. In fact, they bounced higher — with some premature investors kicking themselves for exiting just a few days too early.
Aussies tend to love to badger the big banks — but perhaps this is the time for investors to jump on a bargain buy.
Because of course, we haven’t seen the end of traditional banking yet — they won’t be going anywhere for a long time. They’re still connected to the lifeblood of our financial system — they make up more than a quarter of the S&P/ASX200 Index. And while we may rave on about the fabulous opportunities attached to crypto, we wouldn’t suggest throwing any of the four away too quickly.
At the same time, don’t be naïve. Things are changing.
And besides — dividend yields have not been greater than they are today. They’re great for anyone looking to add something stable to their portfolio.
When this is the case, it usually means the stock market is anticipating the company’s profits falling and the dividend levels with them.
And with NAB’s current dividend paying Australian shareholders a reliable 11.27%, maybe this is what is currently happening.
After all, according to The New Daily, Morgan Stanley predicted NAB dividends to drop this year by 16%. If so, it may be time to move elsewhere.
Yarra Capital Management has an ‘overweight’ position on ANZ after the distilling of the royal commission which ‘clears the uncertainty pervading the industry and should alleviate pressure, enabling ANZ to generate above system credit growth’. Perhaps this is reason enough to give the stocks a second look.
If you choose to take advantage of the drop…
At time of writing, NAB shares are sitting at $24.79 (-1.51%), Westpac at $26.11 (-0.46%), Commonwealth at $71.07 (-0.22%), and ANZ at $26.01 (0.95%).
Westpac, in particular, has seen its share price drop by over 24% in the last five years. Based on the last 12 months, the dividend yield is sitting at 10.2%. Not a bad way to make up for the decline.
These prices are fluctuating, so perhaps watch them over the next few days before you make your decision. And keep in mind that while the investigation is over, many are still having to clean up the damage caused — like the bank levy that cost Westpac $378 million.
That being said, if worse times are coming, the big four could be one of the strongest holds.
But in a time of uncertainty, do your research, and use this drop as a road map for more to come.
For Money Morning
PS: Not interested in bank shares, but still looking to pick a winner? Download this free report, on us at Money Morning: ‘The Four Best ASX Stocks for 2019’. Click here to download.