ANZ, CBA and WBC good value: Williams

Still romanced by the big four bank stocks? Seduced by their prospective dividend payouts that are as much as 80% of profits but nervous whether such a payout can continue? Have no fear, says Citigroup analyst Craig Williams.

Williams says his earnings models for the banks now account for a one-in-six-year economic slowdown. He expects the Australian economy to narrowly avoid recession next year. But such an economic slowdown will only result in a slide in earnings per share for the big four banks and “no absolute dividend per share cuts,” according to Williams (see John Abernethy's Bank stocks a hold strategy).

“With no threat to dividend payouts from our slowdown scenario, the sector’s 5.9% prospective dividend yield in our view still provides compelling value,” he says. Williams recommends investors buy ANZ Bank, Commonwealth Bank of Australia and Westpac.

ANZ shares have gained 28% in the last 12 months, Commonwealth Bank is up 32% and Westpac’s stock has risen 35% in the last year as the dominance of their business franchises, combined with more generous dividend payments, attracted an increasing wave of investors.

But between April 30 and June 12 ANZ shares dropped 17%. They have since gained 7.9%. Commonwealth Bank shares slid 11% between May 20 and June 11 but have risen 7.6% since. Westpac shares fell 19% between May 1 and June 12 but have since added 5.7%.

Meanwhile, Williams’ colleague Nigel Pittaway says Suncorp Group remains his recommended stock pick among insurance shares.

Pittaway forecasts Suncorp will pay a special dividend of 15 cents a share alongside an expected 27 cent per share ordinary dividend. He forecasts Suncorp’s shares will rise to $13.75, 13% above its closing price of $12.17 yesterday.