CBA, ANZ, Westpac and NAB shares: the current dividend outlook

With the Reserve Bank of New Zealand (RBNZ) last week handing down their final capital requirements for New Zealand banks, we examine the current dividend outlook for CBA, ANZ, Westpac and NAB.

New RBNZ capital rules

The Reserve Bank of New Zealand (RBNZ) last week handed down its final set of capital requirements for large and small New Zealand banks.

To the relief of local and international investors, these capital requirements came in softer than expected and are set to be stretched out over a more generous time-frame (seven years instead of five).

The big four Australian banks – two of which have significant operations in New Zealand – rallied in response to this decision. One wonders how long such optimism can last though, as the Australian banking sector continues to face a variety of headwinds.

Indeed, though a more moderate ruling than anticipated, the key takeaway was mostly the same: the big four would be required to bump up their capital positions – estimated in the realm of $20bn – in the longer-run.

Among the big four, Australia and New Zealand Banking Group (ASX: ANZ) remains the most exposed to the headwinds of these new capital rules given its outsized position in New Zealand. Quantifying this exposure, 30% of ANZ’s cash earnings are derived from its New Zealand operations, for example.

The Commonwealth Bank of Australia (ASX: CBA) appears the least exposed to these capital changes – with only 12% of its cash earnings sourced from NZ.

Practise trading Australian bank stocks with an IG demo account now

CBA, ANZ, Westpac and NAB dividends in focus

All up, and according Macquarie Wealth Management, the big four will have to deploy some $1.5bn to $2.5bn in capital between FY20 to FY22 as a result of the RBNZ's decision.

Though some (emphasis on some) of this may be achieved organically, Macquarie argues that these short to medium-term requirements will likely put pressure on bank dividends, potentially reduce the big four’s ability to pursue capital management initiatives (dividend increases, special dividends, or buy-backs, for example), as well as increase the possibility of further cap raises.

Looking at a variety of analyst opinions below, we examine why such concerns may not apply to each of the big four equally.

Mind you, all of this is framed by a larger issue: Australian banks are indeed already struggling – low rates are eating into margins and loan growth has slowed for a number of the big four.

NAB share price: Morgan Stanley bearish

Maybe one of the worst hit by these capital changes will be National Bank of Australia, according to Morgan Stanley, at least.

In a research report released yesterday, Morgan Stanley posited that NAB may very well be required to a pursue a $3.5bn capital raise to fund new-CEO Ross McEwan’s transformation program as well as cut their dividend by a further 10% in FY20e.

NAB already cut their dividend as part of their FY19 results.

In step with this bearish analysis, Morgan Stanley remains underweight NAB – lowering their share price target to $24.00 per share – with the expectation of weaker earnings across FY20 and FY21.

ANZ share price: flat dividend expectations

New Zealand was always going to be the problem here. Though ANZ has touted the strength of its capital position and dismissed the need to raise further capital, recently saying:

'Given the extended transition period and our strong capital position, we are confident we can meet the higher requirements without the need to raise additional capital.'

Macquarie is decisively sceptical. Specifically, due to ANZ’s overweight position in NZ – to which the bank derives 30% of its cash profits, the investment bank believes that ANZ’s current capital position may be weaker than it appears. As a consequence of this, Macquarie analysts are of the opinion that ANZ will likely be required to raise more capital, at some point.

Canvasing a broader view, even though Morgan Stanley believes ANZ’s ‘distributable payout ratio’ is likely to come under pressure as a result of the RBNZ’s new capital rules, the investment bank estimates that ANZ’s dividend yield will remain stable at 5.8% from FY20e to FY22e.

CBA share price: a special dividend looming?

By certain metrics, CBA is one of the most expensive banks in the world, according to some analysts. Yet this premium, according to Macquarie at least, remains justified, given CBA’s comparatively superior capital position.

In fact, given its strong capital position, Macquarie analysts now expects CBA to use any excess capital above the bank’s Level 2 capital requirements to issue a special dividend or pursue a buy-back program.

Though distinct positives – if they come to pass – Macquarie still has an underperform rating on CBA and a 12-month share price target of just $75.00.

Westpac share price: dividend yield may decline

Building on all of this, Macquarie expects that Westpac’s dividend yield will decline in the years ahead, to 6.6% in FY20, 6.2% in FY21 and 6.2% in FY22.

Though, with a potential fine that could run as high as $3.7bn (according to Bell Potter) – stemming from the bank’s alleged 23 million violations of the AML/CTF Act – Westpac investors may potentially be concerned about more than a declining dividend yield.

Even so, at its current share price, Macquarie still sees some upside for the beaten-down bank: hitting Westpac with a 12-month share price target of $26.00 and a NEUTRAL rating.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.