Sydney stockbroker Charlie Aitken takes a positive view on the country’s major banks, saying the high dividends of the sector transform it into a favourable choice in a context of record-low yields.
The Bell Potter director told clients in his note Ringing the Bell that the fall in global bond yields suggests the major Australian banks seem to be “primed for total return outperformance.” Mr Aitken claimed that, given the decline of yields on fixed-interest assets along with commodity prices, investors would have to take more risk now to get the same level of return. The stockbroker opined that getting the same level of return means looking at “bond-like” equities, an option which became viable after Australian ten-year government bond yields dropped to a new record low of 2.56 per cent.
Mr Aitken has formerly recommended stocks with solid potential for yield growth. Although he supported names like IAG, Telstra, AMP and Wesfarmers, he had been “underweight” on the country’s major banks. Still, following the recent plunge in bond yields, the stockbroker claims Commonwealth Bank, Westpac, National Australia Bank and ANZ are attractive, citing projections for strong dividend growth over the coming financial year. As a result, Mr Aitken currently has a “buy” recommendation for National Australia Bank and ANZ and is “mildly overweight” on the sector. Commonwealth Bank, the strongest performer of the banks in recent months did not convince the Bell Potter director, which is why he is “neutral” on this bank.
Despite Ms Aitken’s suggestions, other analysts consider the banks will experience tougher conditions over the year ahead. In mid-January, Fitch Ratings concluded that bank earnings growth was likely to be relaxed this year because the soft economic environment would cause credit quality to “weaken modestly.”
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