Bank dividends sustainable, except for NAB: Macquarie

Macquarie has delivered a largely upbeat assessment of the big four’s dividend outlook.

ANZ is tipped to have the highest yield of the big four, on an adjusted sustainable basis.

Macquarie has delivered some good news for shareholders in Australia’s banks, telling investors current yields of around 6 per cent are sustainable.

In its latest note on the sector, the investment bank said NAB – which has the highest payout ratio of the big four – was the only major institution that could be required to pull back on healthy cash payouts to shareholders.

The broadly positive view stems, in part, from confidence the banks can partially rely on dividend reinvestment plans (DRPs) to uphold their strong capital positions, which leads to Macquarie’s ‘overweight’ rating on the sector at large.

“We believe that banks can sustain and should maintain their dividends in the current low growth environment (ex. NAB),” Macquarie analysts wrote.

“We continue to see value in the banks sector and believe concerns around the sector’s dividend sustainability are overstated.”

ANZ is tipped to have the highest yield on an adjusted sustainable basis, with forecasts for fiscal 2018 revealing a 6.5 per cent yield.

This outperforms projections for CBA of 6.1 per cent, and Westpac and NAB at 6 per cent.

The current yields, in contrast, show NAB at 7.1 per cent, Westpac at 6.2 per cent, ANZ at 6 per cent and CBA at 5.7 per cent.

“Based on our analysis, we estimate that current payout ratios across the sector (excluding NAB) are largely in line with banks’ sustainable payout ratios (assuming ongoing usage of DRPs) and 4-17 per cent overstated should banks decide to fully neutralise DRPs,” Macquarie said.

“While dilutive to earnings, we believe ongoing usage of DRPs is justifiable given the skewed nature of banks’ shareholder base towards domestic investors.”

Macquarie maintained outperform ratings on ANZ and Westpac, while it reaffirmed a neutral view on CBA and NAB.