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Should you invest in ASX banking shares for an annual dividend income of $100,000?

Tristan Harrison
2019 Year of the Piggy Bank

It’s getting very hard to find good value shares these days, for both growth or dividend shares. Are ASX banking shares the answer?

The ASX is trading at close to its all-time highs, whether you are looking at the ASX 200 or All Ordinaries.

But the same isn’t true of the ASX banks, and they’re trading cheaper than the market. The Australia and New Zealand Banking Group (ASX: ANZ) share price is valued at 11.5x FY20’s estimated earnings and Westpac Banking Corp (ASX: WBC) is trading at 12x FY20’s estimated earnings. They are a fair bit below their all-time highs. 

Banks trade at lower earnings multiples due to their nature and the risks involved, but it does lead to a higher dividend yield. ANZ has a grossed-up dividend yield of 8.4%, Westpac has a grossed-up dividend yield of 9.7%, Commonwealth Bank of Australia (ASX: CBA) has a grossed-up dividend yield of 7.5% and National Australia Bank Ltd (ASX: NAB) has a grossed-up dividend yield of 8.6%.

There are also regional operators that pay large dividends like the Bendigo and Adelaide Bank Ltd (ASX: BEN) grossed-up dividend yield of 8.7% and the Bank of Queensland Limited (ASX: BOQ) grossed-up dividend yield of 11.2%.

Depending on the banking shares and allocation you chose, it would be possible to create a 9% grossed-up yield generating annual dividends of $100,000 with a portfolio of around $1.1 million.

But I’m sure you can see the problem if you just invest in ASX bank shares. You’re putting all your eggs in one basket – banking and indirectly property. Of all the banks I’d much rather invest in Macquarie Group Ltd (ASX: MQG) shares for the global and diversified earnings, or perhaps CYBG Plc (ASX: CYB) for a different earnings source.

Foolish takeaway

Whilst it’s entirely possible to generate large income from the banks, I’d think it’s a wise idea.

I would much rather invest in uncorrelated businesses such as Duxton Water Ltd (ASX: D2O) for my dividends.

Or these top ASX dividend shares could also be precisely what you want from income ideas.

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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended DUXTON FPO. 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. 2019