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Big four shareholders tipped to see stronger dividend payouts

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    Shareholders in the big four banks look to receive higher dividends this year thanks to a resurgence in profits driven by the rapid economic rebound.

    Bank shares are often favoured by “mum and dad” retail investors – especially retirees, who often rely on income from the shares after they stop work, according to The Sydney Morning Herald.

    Last year, however, bank shareholders got a clear demonstration of the risks of relying on dividends to fund their retirement, as the big banks slashed dividend payouts – in some cases to zero – as they prepared for a tsunami of bad debt driven by the COVID-19 pandemic.

    That tsunami never made landfall. Banks are turning big profits, driving predictions of higher dividends and likely share buybacks, the Herald reported.

    Commonwealth Bank is predicted to top the list when it comes to higher dividends, with Morgan Stanley analysts forecasting its dividends would rise to $3.40 per share, up from $2.98 last financial year. Morgan Stanley projected further growth to $4 next year and $4.25 the year after that.

    Analysts forecast Westpac dividends rising to $1.18 per share this financial year and $1.25 next financial year. NAB’s dividend is predicted to be $1.20 this year and $1.30 next year. For ANZ, analysts projected $1.40 per share this year and next, up from $0.60 last year.

    The big four are also sitting on billions in excess capital, the Herald reported. Morgan Stanley predicted that well over $20 billion would eventually be funnelled back to shareholders through share buybacks in coming years.

    Read next: ANZ mum on dividends despite most borrowers resuming payments

    Regulations require lenders to hold capital equal to 10.5% of their risk-weighted assets, but the latest figures showed that the big four were well ahead of that requirement. CBA’s capital ratio was 12.7%, NAB and ANZ were both at 12.4%, and Westpac was at 12.3%.

    Despite the sunny financial news, bank boards remain cautious about the risk of further pandemic-related lockdowns, and they have kept dividend payouts modest. However, Morningstar analyst Nathan Zaia told the Herald that the outlook for bank dividends was “very good,” and he didn’t think it would be necessary for banks to continue keeping payout ratios so low.

    In addition to falling bad-debt costs, banks are also reaping the benefits of cheap funding costs driven by record-low interest rates and strong credit growth thanks to the housing boom, the Herald reported.

    Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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