ASX big bank dividends are a write-off in FY20 but are set to rebound as we head into the new financial year.

The question is which of the big four dividend favourites will generate the best yield for income seeking investors in FY21?

The answer isn’t quite as straightforward to work out. While we are very likely to see a dividend recovery in the near-term, the payouts are unlikely to match pre-COVID-19 levels for at least a few years.

How to value the big banks

But trying to work out what the dividend is going to be is important as dividends are the primary driver for the sector, in my opinion.

Morgan Stanley throws in credit quality and capital on top of dividends as key considerations for the sector as it calculates what is a sustainable payout for the sector.

The risk of loan defaults and capital adequacy are important in so much as how they relate to dividends though, but that’s just my opinion.

Key things you should know about ASX bank dividends

On that note, there are some interesting findings from Morgan Stanley. Firstly, the broker doesn’t believe dividends will return to FY19 levels until sometime after FY22 as dividends forecast for that year will still be around 25% lower than last financial year.

However, it believes that dividends will trough in FY20 before staging a gradual recovery. This means dividends are set to rise over the next few years.

Further, the average dividend payout ratio in FY22 is estimated to be 64%. That’s well below the 80% plus range that the big four were coughing up during in their heydays.

But the 64% is still high by global standards as US and UK banks are only expected to pay out 32% and 47% of their profits as dividends, respectively, according to Morgan Stanley’s estimates.

The ASX big bank with the best yield

Coming to the main event, the ASX big bank with the best forecast dividend for FY21 is Westpac Banking Corp (ASX: WBC).

The broker is tipping a $1.05 a share distribution for the next financial year, and that increases to $1.20 in FY22.

This gives Westpac a net yield of 5.8% in FY21 and 6.6% the following year. Throw in the franking and the gross yield shoots up to 8%-9%.

How the other banks’ dividends compare

Next on the dividend leader board is Australia and New Zealand Banking GrpLtd (ASX: ANZ). The stock is sitting on an expected net yield of 5.6% in FY21 and 6.7% in FY22.  

National Australia Bank Ltd. (ASX: NAB) is in third place with a net yield of 5.1% next year and 5.9% in FY22, while Commonwealth Bank of Australia (ASX: CBA) is sitting on an expected yield of 4.9% and 5.4% for the two years, respectively.

Foolish takeaway

I won’t necessarily say that the big bank with the best yield right now is the top buy. The yields can change as bank share prices fluctuate, so WBC may not hold on to its crown next week.

What I will say is that even CBA’s gross yield (lowest of the lot) of 7% is looking quite appealing in this record low interest rate environment.

CBA has the strongest balance sheet and is arguably the best placed big bank. So, while it’s the most expensive of the big four and has the skinniest yield, it remains my top pick in the sector given the uncertain times we live in.

More reading

• ASX 200 up 0.9%: Big four banks rebound, Appen hits record high
• Where to invest for reliable dividend shares
• Diversify your portfolio with 3 top ASX 200 shares from 3 sectors
• Beat the cash rate cuts with these top ASX dividend shares
• How the ASX 200 can help first home buyers save for a deposit

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. 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 with the best forecast dividend yield for the new year appeared first on Motley Fool Australia.

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How different the world of investing is today than it was back in March… At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is motoring along at 5,942 points. At these levels, we are now up more than 30% from the lows we saw in March, although still aways from the all-time highs we were seeing in February.

But some investments have done one better. Just this week, the BetaShares Nasdaq 100 ETF (ASX: NDQ) made a new all-time high. This ASX exchange-traded fund (ETF) tracks the US Nasdaq exchange and counts some of the biggest tech companies in the world (like Microsoft and Amazon.com) as constituents.

But not all ETFs are flying so high.

Here are 3 that are still substantially below their early 2020 highs, and that might make good investments today for long-term returns:

A top global shares ASX ETF

The iShares Global 100 ETF (ASX: IOO) is an ETF that tracks the 100-largest global companies across the advanced economies of the world. These are largely made up of American shares like Apple, Microsoft, Facebook and Alphabet, but the United Kingdom, Canada, Japan and even Australia get exposure, too.

Despite the recovery in global markets since March, this ETF is still trading around $77 a unit – a fair distance from the $85+ price tag it was asking back in February. Thus, it might be a good time to consider this blue chip bastion today.

Consumer staples shares

The iShares Global Consumer Staples ETF (ASX: IXI) is another ASX fund that hasn’t yet fully recovered from the shellacking it saw in March. This ETF houses a basket of globally-listed companies that dwell in the consumer staples space. This includes makers of packaged foods, drinks, household essentials and cleaning products, as well as ‘sin stocks’ like alcohol and tobacco companies. You’ll find our own Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) here, as well as global giants like Procter & Gamble, Nestle and Unilever.

Ishares’ Global 100 units have recovered well since March. Coincidently, these shares also hover around $77, below their $85 February range. For one of the safest ETFs around (in my opinion), today could also be a good day to add this ETF to your portfolio.

Emerging markets opportunity?

The Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE) is our final ETF to consider today. It tracks shares from those economies that are deemed to be ’emerging’. You’ll find shares from China, Taiwan, India and Brazil here, amongst others. These markets are riskier, but also offer potentially higher long-run returns in my opinion if demographics are anything to go by.

VGE units were asking close to $75 earlier in the year, but today are going for around $64.80. If you want to add some exotic spice to your portfolio with this ETF, today is as good a time as any in my view.

More reading

• Investing experts warn of second ASX market crash
• Australian retail sales up 16.3% in May
• 3 ASX shares I think are super cheap right now
• Brokers just upgraded these ASX 200 stocks to “buy” today
• ASX 200 up 0.9%: Big four banks rebound, Appen hits record high

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia owns shares of COLESGROUP DEF SET, iShares Global Consumer Staples ETF, and Woolworths Limited. 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 These 3 ASX ETFs are yet to recover from the market crash appeared first on Motley Fool Australia.

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With the S&P/ASX 200 Index (ASX: XJO) today recording yet another day of gains and, once again, pushing over 6,000 points, investors will no doubt be celebrating. The ASX 200 is now more than 30% above the lows we saw in March. And there is definitely more goodwill in the markets today than fear (from where I’m standing, anyway).

But could this be the calm before another storm, aka, an ASX market crash? Or more dramatically, are we in the eye of the storm, the calm lull between 2 tempests?

Well, that’s what a growing list of investing experts are hinting at. Today we’ve heard from 2 investing legends – Ray Dalio and Howard Marks – on the dangers they see in the markets right now.

Experts warn of danger ahead

Dalio is the most successful hedge fund manager in history and an expert on market cycles. His fund, Bridgewater Associates is the largest of its kind with hundreds of billions in assets under management.

Marks, of Oaktree Capital, is another ultra-successful hedge fund manager, respected by investors as great as Warren Buffett.

In an article by the Australian Financial Review (AFR), it’s reported that Dalio’s Bridgewater is warning of a ‘lost decade’ for global share markets:

“Even if overall profits recover, some companies will die or their shares will devalue along the way. Left with lower levels of profits and cash shortfalls, companies are likely to come out on the other side of the coronavirus more indebted.”

It’s this indebtedness that Bridgewater is warning could weigh on share market returns for years to come.

In separate reporting by AFR, the publication also quoted Howard Marks. The investor warns that the unprecedented intervention by the US Federal Reserve is the only thing currently pushing markets higher:

“[Investors have] no reason to believe the Fed insists on good value, high prospective returns, strong creditworthiness to protect it from possible defaults, or adequate risk premiums…The higher the market went, the more people believed that it was the goal of the Fed to keep it going up, and that it would be able to.”

Marks notes that passive investments and index exchange-traded funds (ETFs) are exacerbating the problem. Marks said they ‘just buy everything’, they are not value-sensitive and do not bring price discovery to the table.

What should investors make of these ASX market crash warnings?

I think all investors should take the remarks of these 2 seasoned and experienced investors seriously. Thus, I think we may see adverse consequences in the American financial markets from its government’s intervention. If this was to occur, it would almost certainly flow into ASX shares.

Therefore, I think the importance of investing prudently and at prices that make sense is as high as ever – as is keeping some cash on the sidelines.

More reading

• 3 ASX shares I think are super cheap right now
• Brokers just upgraded these ASX 200 stocks to “buy” today
• ASX 200 up 0.9%: Big four banks rebound, Appen hits record high
• Is the Downer EDI share price in the buy zone?
• Looking to buy ASX technology shares? Here are 4 to consider

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 Investing experts warn of second ASX market crash appeared first on Motley Fool Australia.

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