Do ANZ shares offer the biggest dividend yield in the ASX bank sector?

ASX bank shares are often viewed through a dividend lens – how much dividend income can they generate? Sometimes, ANZ Group Holdings Ltd (ASX: ANZ) shares can provide the biggest dividend yield because of their generous dividend payout ratio and low valuation.

Banks can typically trade on a relatively low price/earnings (P/E) ratio, partly because they have such large balance sheets. A relatively small percentage of their loans going bad can significantly impact that year’s profit. Pleasingly, a low P/E ratio can translate into a large yield.

We shouldn’t choose an investment just because of the dividend yield. The reliability of the yield should be considered, or else the yield will just be a mirage. When evaluating the outlook, we need to consider whether earnings are increasing and whether today’s valuation is attractive.

Having said that, investors interested in ANZ shares may like to know where it sits in terms of the potential dividend income compared to other banks. I will exclude franking credits from the yield because it’s unknown what ANZ’s upcoming franking level will be.

Dividend forecast for ANZ shares

The estimate on Commsec suggests the major ASX bank could pay an annual dividend per share of $1.66 in FY25 and $1.66 in FY26.

If those predictions come true, the bank would pay a dividend yield of 5.6% in both FY25 and FY26.

Passive income projections for other ASX bank shares

According to the (independent) estimates on Commsec, Commonwealth Bank of Australia (ASX: CBA) could pay an annual dividend per share of $4.55 in FY25 and $4.59 in FY26. This would translate into forward dividend yields of 3.5% and 3.6%, respectively.

National Australia Bank Ltd (ASX: NAB) is projected to pay annual dividends per share of $1.69 in FY25 and $1.71 in FY26. These forecasts suggest dividend yields of 4.7% and 4.8%.

Westpac Banking Corp (ASX: WBC) is predicted to pay total dividends per share of $1.50 in FY25 and $1.50 in FY26, according to Commsec. This works out to be forward dividend yields of 5.4% in both financial years.

According to the projections on Commsec, owners of ANZ shares could get the biggest yield for the next couple of financial years compared to the other major ASX bank shares.

But, there are other banks to consider, so let’s look at those as well.

Macquarie Group Ltd (ASX: MQG) is predicted to pay an annual dividend per share of $7 in FY25 and $7.55 in FY26. This would translate into forward dividend yields of 3.4% and 3.7%, respectively.

Bank of Queensland Ltd (ASX: BOQ) is predicted to pay an annual dividend per share of 34 cents in FY25 and 36 cents per share in FY26. This would be dividend yields of 5.6% and 5.9% in the next two financial years.

Bendigo and Adelaide Bank Ltd (ASX: BEN) is forecast to pay an annual dividend per share of 63 cents in FY25 and FY26. This translates into a forward dividend yield of 5.4%.

Foolish takeaway

BOQ is predicted to pay potentially the highest yield in the next two financial years, though its profit has been going the wrong way in recent years. Aside from BOQ, ANZ shares could have the highest dividend yield in the ASX banking sector, which may be an appealing factor for some investors. But, as I said earlier, the yield isn’t necessarily everything.

The post Do ANZ shares offer the biggest dividend yield in the ASX bank sector? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.