It’s no secret that the ASX banks had a pretty average year last year – in both sharemarket performance and reputation. Actually, make that an average 2 years – 2018 was the year that brought us the Royal Commission, after all.
But of all the ‘big four’ ASX banks, only Commonwealth Bank of Australia (ASX: CBA) managed a substantial gain last year (around 10% before dividends).
National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) were all basically flat for the year.
But this could bring its own opportunities. From a dividend perspective alone, CBA shares are offering a starting yield today of 5.32%. ANZ is offering 6.41%, NAB 6.67% and Westpac a whopping 7.06%. These yields are a lot higher if one considers the benefits of franking credits as well.
So from a dividend perspective, the winner is clearly Westpac. But let’s look at the most common metric for valuing a stock – the price-to-earnings (P/E) ratio.
The P/E ratio simply represents the stock price of the company divided by the company’s earnings per share. It’s a simplistic way of valuing a company but also gives investors a valuable insight into how the market is viewing the prospects of the stock in question.
CommBank’s share price today represents a P/E ratio of 17.71. ANZ’s P/E ratio is standing at 11.72, NAB is at 14.34 and Westpac is at 12.99.
So on face value, it’s clear that ANZ comes out as the winner if we just look at each bank’s P/E ratio. This is interesting as ANZ has faced far less headwinds over the last 12 months than arguably both Westpac and NAB – both of which have cut their dividend payouts and are facing possibly substantial fines for corporate misconduct this year. Westpac is even conducting a capital raising, which dilutes the value of existing shareholders’ investments in the company.
On these metrics, I have to say that I think the best value for money if one wanted to expand a portfolio’s exposure to ASX bank shares comes from ANZ at the current time. ANZ shares offer a robust dividend yield that comes with partial franking credits, along with a P/E ratio that screams value to me.
Although there are undoubtedly headwinds facing the banking sector in the short-term, picking up some ANZ shares at the current price for a long-term hold could prove to be a worthwhile investment.
The post Here’s the cheapest ASX bank share on the markets today appeared first on Motley Fool Australia.
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank 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 Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020