Bank Stocks Improve At the Expense of Large Retailers

11.30 am Tuesday 30 April 2013

Bank Stocks Improve At the Expense of Large Retailers

By Ric Spooner - Chief Market Analyst CMC Markets

ANZ's result justifies increasing confidence that banking stocks will continue to deliver moderate earnings and dividend growth for investors over the next 12 months. Given the outlook for low (and possibly lower interest rates), this remains an attractive story for investors looking for dividend income and prepared to ride out short to medium term price fluctuations

While this morning's result set a positive tone for the banking sector as a whole, some features of the result may be difficult for Westpac and NAB to match when they report. To some extent ANZ is playing catch up with other banks in driving its cost: income ratio lower to 44.4% and guiding to the higher end of its 65-70% dividend payout ratio in future

This morning's buying of banking stocks appears to have been party funded by switching out of other dividend yield stock like the major retailers, Woolworths and Wesfarmers. This reflects growing caution about the high PE valuations of these stocks compared to the banks which have a similar growth profile.

Resource stocks are likely to be back in focus later in the week, as investors assess whether the recent recovery in copper and oil markets looks justified in the light of major economic statistics such as global manufacturing PMI's and US jobs growth.

ENDS

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