ANZ at risk of dividend cut, says Morgan Stanley, as UBS downgrades to sell

Shareholders in ANZ Group (ASX: ANZ) face the rising risk of a dividend cut as the bank's new chief executive Nuno Matos invests to improve its retail banking experience.

The warning comes from Morgan Stanley's research team, which still forecasts ANZ's dividends to remain flat at $1.66 per share over the 2025 to 2027 financial years.

"While our base case is that the major banks hold their dividends, we believe trading multiples would come under pressure if investors believed the chance of dividend cuts was increasing. We think the risk of a dividend cut is highest at ANZ, then Westpac," the broker said in a research note.

ANZ in transition

ANZ is tipped to invest heavily in its ANZ Plus digital banking platform - in a move that may see it migrate 6 million customers and $160 billion in term deposits from existing ANZ Classic accounts.

After its July 2024 acquisition of Suncorp Bank, ANZ is also expected to shift another 1.2 million Suncorp Bank customers and $56 billion in term deposits to the ANZ Plus platform, which will offer an enhanced product set, user interface (UI) and digital capabilities. 

However, Morgan Stanley says the mass migration of term deposits and customers may pressure its profit margins as it offers better savings rates on the ANZ Plus products. 

The bank's medium-term strategy in shifting customers to ANZ Plus and investing in the platform is that it will help it gain market share in a competitive market for retail customers.

The decision to invest in user experience (UX) and user interface (UI) means it will also try to close the gap on market leader Commonwealth Bank (ASX: CBA), which is widely regarded as reaping the benefits of past investment in UX and UI to take market share. 

Elsewhere, it's no secret Westpac (ASX: WBC) has struggled to integrate its technology stacks after its acquisition of St George Bank, and National Australia Bank (ASX: NAB) is also playing catch-up to CBA in terms of digital capabilities. 

Dividend outlook

Morgan Stanley says ANZ Bank's targeted dividend payout ratio is between 60% and 65% of earnings, with estimates for a $1.66 per share in financial 2025 taking the payout ratio to 73%. 

To maintain the dividend at $1.66 per share in financial year 2026, Morgan Stanley estimates ANZ will have to lift its payout ratio to 76% - a long way ahead of its targeted range. The broker warned if ANZ's profit margins, or loss rates worsen only fractionally from its existing forecasts, then the payout ratio would need to hit 86% to avoid a dividend cut.

On Friday UBS also warned on ANZ. Its banking team downgraded the lender's shares to sell from hold and cut its price target to $26.50 from $30. Morgan Stanley is equal-weighted on the stock with an identical $26.50 price target. 

Elsewhere, Morgan Stanley does not expect NAB to be in a position to lift its dividend until the second half of financial year 2026, with Westpac not forecast to pay higher dividends until the second half of 2027. 

"Elevated payout ratios mean that there is some risk of dividend cuts, despite the emphasis that Boards place on dividend 'sustainability'," the broker said. 

CBA is the only bank forecast to lift its dividend in financial 2026 and 2027, although its yield is as low as 2.6% based on a forecast for dividends of $4.85 per share in financial year 2026 and share price of $182.53. 

This means investors could earn a higher yield in a risk-free savings account at any of the major banks as the curious bull run for Australia's largest bank stock rolls on. 

On Monday morning ANZ shares traded down 1.7% to $27.92.