ANZ, CBA and NAB share prices: why dividend pressure is set to stay

According to Macquarie Wealth Management, dividend pressure looks set to continue for the big four, as revenue and earnings headwinds persist.


The last few weeks have seen the majority of the big four report their FY19 full-year results – save for CBA – which reported their first quarter results for the 2020 fiscal year.

Overall, these releases and the market reaction that followed were a mixed bag.

NAB cut their dividend by 16% but their share price rose; ANZ kept their dividend stable but slashed their franking rate, and CBA showed modest earnings and lending volume growth.

Yet even so, Macquarie Wealth Management predicts trouble ahead for the big four – especially as it concerns their all-important dividends.

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ANZ share price: a sour outlook

Centrally, cost pressure means that the Macquarie believes that ANZ's underlying earnings will fall by around 7% in FY20 to FY21.

Moreover, while ANZ's 'unquestionably strong' CET1 ratio of 11.5% (pro forma) looks strong on the face of it, with the Reserve Bank of New Zealand (RBNZ) set to roll out a set of likely even more strict capital requirements – the investment bank believes ANZ may be required to pursue a capital raise in the future.

As a point of reference, Westpac saw its share price fall steeply when they announced a $2.5bn capital raise to the market as part of their full-year results. NAB opted against such a move, instead revealing a dividend reinvestment plan (DRP) worth $700m during their FY19 results.

With all this considered, Macquarie has a neutral rating on the commercially-focused bank and a 12-month price target of $26.50 – slightly ahead of ANZ’s current share price.

CBA share price: low rates persist

While Macquarie noted that CBA’s recent Q1 FY20 results were ahead of its big four peer group; overall the investment bank expects that it will become increasingly difficult for CBA to maintain their current dividend levels – as historically low interest rates continue to weigh on the bank(s).

Instructively then and as we previously wrote, UBS:

‘Expects CBA's NIM [net interest margin] to decline in the second quarter [of FY20] as the impact of lower rates becomes more apparent.’

In line with this, Macquarie has an underperform rating on CBA and a share price target of just $75.00

NAB share price: things remain neutral

Finally, like ANZ, Macquarie has a neutral rating on NAB and a 12-month price target of $27.00.

Though Macquarie believes NAB's results were better than ANZ and Westpac’s, the investment bank still posits that NAB's underlying earnings are likely to decline by around 6% in FY20-FY21.

In step with this, earnings per share (EPS) is expected to contract by around 15% over that time frame – and like ANZ – put pressure on NAB’s ability to maintain a its dividend over time.

According to the ASX, NAB currently has a significant dividend yield of 6.01%.


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