Latest ASX bank results: the big takeaways for dividend investors

Ambitious cost-cutting programs, staff poaching, and tech innovation have added extra drama to the recent bank reporting period, all as big question marks over valuations linger. 

While top-line numbers weren’t thrilling, there are various shifts investors should note when considering the forward-looking dividend prospects of our big banks. 

Here’s what stood out for the Plato Australian Shares Income Fund team from the ANZ, NAB, Westpac, and Macquarie results. 

ANZ

Key message: Messy, but watch cost cutting

It appears as though the market didn’t quite know what to make of the ANZ result released this morning (November 10).

Headline earnings were down 14%, but if you adjust for all the significant items, cash earnings were actually flat. The market seems to like Nuno Matos' cost-cutting agenda, and for us we do like to see ANZ getting back to banking basics and trimming fat. 

The dividend stayed flat, as pre-announced, but its still gets you a 5.9% annual gross yield. That's above the market average right now. 

The payout ratio remains healthy at around 74% of adjusted earnings. 

The net interest margin was down slightly, nothing major, but that $800 million in expected cost savings plus $500 million of Suncorp synergies is meaningful. 

The key negative was hearing loss rates for bad debts doubled to 7 basis points, which surprised a few people, but it’s still at a low level.

NAB

Key message: Disappointing and expensive

NAB’s result disappointed. The bank trades at a higher multiple than ANZ and Westpac so the market expects more. 

Instead, earnings were down, admittedly not by much, but enough to notice. 

The dividend didn’t budge and equates to a 5.7% gross yield. The payout ratio came in at 73%, close to ANZ. 

On the bright side, net interest margin rose 8 basis points. But NAB’s core capital ratio is lower versus its peers, and bad debts hit 12 basis points, which was the real letdown. 

NAB probably wears that thanks to more exposure to Victoria, where the economy isn’t firing as well as elsewhere in Australia. Some one-offs pushed bad debts up, but this will be key to watch going forward.

Westpac

Key message: Best of the bunch, dividend up

Westpac delivered a solid result. In Plato's view the best of the bunch.

Westpac’s result was down 1%, so similar story to its peers on growth, but the stock is cheaper than NAB and they managed to lift their dividend by 1% to deliver a 5.7% gross yield. 

Net interest margin rose two basis points, a decent gain. The capital position is strong, with a CET1 ratio at 12.5%, above NAB’s 11.8%, so they’ve got more flexibility for future dividends. The credit impairment charge came in at just 5 basis points, making Westpac the standout in asset quality.

Interestingly, amid planning for big technology platform overhaul, Westpac has been poaching from CBA - there’s been a string of key executives making the move. 

Macquarie

Key message: Market disappointed, but dividend up

Macquarie's mix of businesses makes it more complicated to assess and you will always get a mix of views. Investment in renewables when hype was at its peak in prior years has hurt - the bank had to write down some offshore wind assets this year. This, and softer profits from its commodity division meant operating profit dropped 21% in the second half, but actually rose 3% from the previous half. 

Some profitable data centre sales should help performance fees in the future. 

The good news is the dividend was bumped by 8%, equating to a 3.8% annual gross yield. The payout ratio is a shade lower at 64%, but still significant.

What can investors make of all this?

Dividend yields across the big banks are still holding up with 5.7% to 5.9% gross yields on offer, comfortably above market levels. 

But bank valuations still come with a big question-mark, so over the coming year assessing management performance and thoroughly analysing fundamentals for signals has arguably never been more important for investors.

Banks do remain a critically important part of the market for Australian income-seeking investors, however the only free lunch is diversification. Just buying the big-name dividend stocks in a set-and-forget approach over the past 14 years would have actually delivered very poor income outcomes.

Our highly active and tax effective portfolio management approach has a track record of delivering significantly higher levels of dividends and franking credits for Australian retirees and other income-seeking investors. 

Learn about the Plato Australian Shares Incomes Fund 

Since its inception in 2011, the Plato Australian Shares Income Fund has delivered 9.5% income per annum, along with capital growth of 2.6% per annum (after fees). 

The Fund is designed specifically for Australian retirees and other low-tax investors.

Click here to visit the Plato website where you can learn more about maximising your income.