ANZ surges on profits payout
In a result that smashed market expectations, ANZ hiked the interim dividend by 11 per cent to 73¢ a share on Tuesday, and said it would lift the share of profits paid as dividends as it continued to cut costs and target growth across Asia.
The $2 billion dividend payout was underpinned by a 10 per cent jump in half-year earnings to $3.18 billion, but is also a sign the bank is accumulating excess capital due to slow lending growth.
Investors cheered the result, pushing ANZ shares up by 5.8 per cent, or $1.74, to a new high of $31.84.
While ANZ was cautious on the economic outlook, the result fuelled further share price rises among the big banks, which helped drive the share market to its highest level in almost five years.
The high dividend yield of bank stocks has been a key attraction for investors in recent months. It is a big reason the market value of Commonwealth Bank and Westpac have hit record highs of more than $100 billion.
Although analysts say bank dividend growth may soon cool off, ANZ chief executive Mike Smith signalled he expected further earnings growth, as its push to lift productivity still had more "gas in the tank".
In the half, ANZ profits were bolstered by an 8 per cent reduction in expenses, and Mr Smith said it remained on track to meet cost-reduction targets.
"You could say we're a growth stock, we're a productivity stock and actually we're a yield stock too," Mr Smith said.
Despite soft demand for credit, ANZ profits benefited from a surprise drop in provisions for bad debts, which fell to $599 million, a fall of 13 per cent compared with the previous September half.
Its institutional and international division also had a strong half, with profits jumping 26 per cent over six months, and earnings in its core Australian division rose 7 per cent, helped by its move to pass on only part of the cut in the cash rate to borrowers.
Helped by this earnings growth, the bank said it would lift its dividend payout ratio towards the upper end of its target range of 65 to 70 per cent. ANZ's payout ratio is still lower than its peers, which return about 75 per cent of profits to shareholders.
After the high dividends payouts fuelled a surge in bank stocks in recent months, some analysts are cautioning that further dividend growth could be harder to come by, because it would depend on earnings growth.
Nomura's banking analyst, Victor German, said growth in dividends was likely to slow as banks' ability to increase payout ratios from here diminished. "It will be a brave person expecting ongoing increases in dividends from rising payout ratios. I think at some point that will stop, and I think we are getting close that point," he said.
ANZ's chief financial officer, Shayne Elliott, said it would not pay out as high a share of profits in dividends as its rivals, because it was still positioning itself as a growth stock focused on Asia.
"We will continue to have a lower payout ratio than some of our peers because we have things to do with our capital in terms of creating long-term value for shareholders," Mr Elliott said.
Among the other major banks, analysts say Westpac has the strongest capital position and is most likely to consider a special dividend.
Frequently Asked Questions about this Article…
ANZ shares jumped after the bank pledged to give shareholders a bigger slice of future profits, hiked its interim dividend by 11% to 73¢ a share and announced a $2 billion payout. The result beat expectations, with half‑year earnings up about 10% to $3.18 billion, and investors pushed the stock up roughly 5.8% to a new high.
ANZ raised its interim dividend by 11% to 73¢ per share, resulting in a $2 billion payout. For investors this signals stronger returns in the near term and reinforces why bank dividend yield has been an attractive feature for income-focused shareholders.
ANZ said it will lift its dividend payout ratio toward the upper end of its 65–70% target range, but it remains lower than some peers that return about 75% of profits. ANZ’s management says it will keep a more conservative payout because the bank is positioning itself as a growth stock focused on Asia.
No. The article notes slow lending growth has led to excess capital. ANZ’s profit improvement was driven by a roughly 10% rise in half‑year earnings, an 8% reduction in expenses, a surprise drop in bad‑debt provisions to $599 million (down 13%), and strong performance in its institutional & international division and core Australian business.
Dividend growth is possible but not guaranteed. ANZ’s CEO signalled he expects further earnings growth, which could support dividends, but analysts — including Nomura’s Victor German — caution that increases in payout ratios may be hard to sustain and dividend growth could slow if earnings momentum weakens.
ANZ reported an 8% reduction in expenses for the half and said it remains on track to meet cost‑reduction targets. Management highlighted productivity gains as a key driver of earnings, describing the bank as a growth, productivity and yield stock.
ANZ’s CFO Shayne Elliott said the bank will not pay out as high a share of profits in dividends as some rivals because it needs capital to support its growth strategy in Asia and to create long‑term value for shareholders.
The article notes high dividend yields have pushed Commonwealth Bank and Westpac to record market values, and analysts say Westpac currently has the strongest capital position and is the most likely of the majors to consider a special dividend. However, further dividend growth across the sector will depend on sustained earnings performance.
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