The ASX big bank stock that’s most at risk of a dividend cut

If you thought the worst of the dividend cuts were over for the ASX big banks, think again! There’s one that could disappoint yet again.
The post The ASX big bank stock that’s most at risk of a dividend cut appeared first on Motley Fool Australia. –

Graphic image of scissors cutting banknote in half

If you thought the worst of the COVID-19 dividend cuts were over for the ASX big banks, think again!

There’s one bank in particular that could deliver more dividend pain even as the economy recovers from the impact of the pandemic.

Dividend downgrades were commonplace during the August reporting season with the big four banks slicing or suspending their payouts.

Big banks’ sorry dividend story

These include the Commonwealth Bank of Australia (ASX: CBA) as it chopped its latest payment by 58% to $0.98 a share and National Australia Bank Ltd. (ASX: NAB), which lowered its dividend to $0.33 from $0.83.

Australia and New Zealand Banking Group (ASX: ANZ) deferred its interim dividend from May and only just paid a $0.25 distribution, while Westpac Banking Corp (ASX: WBC) cancelled its half year dividend.

Mind you, the banks aren’t the only ones guilty of being dividend disappointers. Several other S&P/ASX 200 Index (Index:^AXJO) companies followed the same route.

Record $1.3bn fine lifts WBC’s dividend risk

But the market believes the dividend risks is now behind largely us and the next payments can only be better.

That’s largely through, but maybe not so for Westpac as it’s seen by experts as having the weakest balance sheet among the big four.

It’s record $1.3 billion fine for money laundering is a big reason for the dour view. This is the largest fine ever dished out in Australian corporate history and Westpac only provisioned around $900 million for the disgraceful act.

Will Westpac pay a final dividend for FY20?

While the market believes CBA, ANZ Bank and NAB will have little trouble paying the next dividend instalment (and I think it will probably be higher than their last payment), the jury’s out for Westpac.

There is a chance that management will cancel or defer paying a final dividend when it hands down its full year results in November.

The move will almost certainly cement Westpac as the worst performing big bank stock for 2020 as its peers pull out their dividend check books.

Best case dividend scenario still looks gloomy

However, Morgan Stanley believes it won’t come down to that. While it acknowledges the risks, the broker believes Westpac will still pay a final dividend, albeit a tiny one.

It was forecasting a 30 cent-a-share payment, but lowered this to 25 cents given the Australian banking regulator’s guidance for banks to cap their payout ratio to 50% of profits.

“Risk is still skewed to the downside given the potential for larger write-downs and the need for the Board to adopt a conservative approach at this point in the cycle,” said Morgan Stanley.

“A 25c dividend would use ~20bp or ~A$0.9bn of capital and imply an ex dividend CET1 ratio of ~10.7%. This suggests just ~A$1.0bn above APRA’s ‘unquestionably strong’ target of 10.5%.”

Capital raising risk

That’s cutting it a little close and management may need to raise some capital. It doesn’t make sense to me to pay a dividend and do a cap raise, although that’s what NAB did earlier this year.

On the other hand, Morgan Stanley thinks it’s more likely that Westpac will sell assets rather than new equity.

Shareholders would hope so given how depressed the Westpac share price is.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post The ASX big bank stock that’s most at risk of a dividend cut appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!