Banks: Now expecting dividends next month

About the author:

Azib Khan
Author name:
By Azib Khan
Job title:
Senior Analyst
Date posted:
30 July 2020, 11:00 AM
Sectors Covered:
Banks

As we flagged as a potential development last week, APRA has announced that it has eased dividend restrictions for Authorised Deposit-Taking Institutions (ADIs).

APRA has said that, for 2020, it expects ADIs to retain at least half of their earnings, and actively use dividend reinvestment plans (DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from distributions.

We are now forecasting FY20 dividends to be 45% of FY20F statutory NPAT for all of the Australian banks under our coverage.

Watch

What dividend do we expect from Commonwealth Bank (CBA), ANZ, Westpac (WBC) and BOQ?


We now expect CBA to declare a final dividend of $0.34 per share (fully franked) with its FY20 results release on the 12th of August. CBA has announced a $300m pre-tax remediation provision charge for 2H20; we have accordingly reduced our FY20 cash earnings forecast for CBA by 2.7%.

We also now expect ANZ and Westpac to declare deferred interim dividends next month. We expect WBC to declare a deferred interim dividend of $0.15 per share (fully franked) as part of its scheduled 3Q20 trading update on the 18th of August.

We expect ANZ to declare a deferred interim dividend of $0.25 per share (70% franked) as part of its scheduled 3Q20 trading update on the 19th of August. These deferred interim dividend forecasts are based on a dividend payout ratio of 45% of 1H20 statutory NPAT.

While it's possible that BOQ will also declare a deferred interim dividend before its FY20 results release on the 14th of October, we are assuming that BOQ will just declare a final dividend on the 14th of October of $0.16 per share (fully franked) equivalent to 45% of its FY20 statutory NPAT.

We expect all of the Australian banks under our coverage to operate DRPs with no price discount.

Forecasts

Our FY21 dividend forecasts for the banks equate to 45% of our FY21F statutory NPAT; that is, we are assuming that dividend restrictions will continue in FY21F. We are assuming that dividend restrictions will not apply in FY22F.

Apart from the CBA change mentioned above, we have made no changes to our cash earnings forecasts.

Preferred bank

Westpac (WBC) remains our preferred bank.

While we see the risk of WBC's AUSTRAC-related provision of $900m needing to be topped up (and this results in downside risk to our dividend forecasts for WBC), we believe this risk is more than baked into WBC's share price.

Our sector investment views are detailed in our last sector report titled Damage priced in is overdone.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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