ANZ buyback presents optimistic bank dividend outlook

The announcement of a $1.5 billion ANZ buyback is evidence of a strengthening economy and an indicator of strong bank dividends in the future.

ANZ announced to the Australian Securities Exchange (ASX) today that it would be initiating a buyback of $1.5 billion of shares on-market as part of its capital management plan from next month.

The firm said this would be the best way to return a “modest amount of surplus capital” to shareholders.

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ANZ chair, Paul O’Sullivan, said: “Despite the very real challenges being experienced by many of our customers, we have the financial strength to continue to support our customers, while also returning surplus capital to shareholders. After reviewing options, we consider an on-market buyback to be the most prudent, fairest and flexible method to return capital in the current environment.

“Our capital position may allow future capital returns to be considered, however we will continue to focus on balanced and prudent outcomes for all stakeholders.”

The news was a “strong indicator of a strengthening outlook” for income investors, according to Plato Investment Management, and could mean future off-market buybacks by the other banks.  

This would be a “strong signal” that bank dividends were likely to continue to increase over the next 12 to 24 months.

Peter Gardner, senior portfolio manager at Plato, said: “ANZ does not have excess franking credits, so an off-market buyback was never on the table. As we know off-market buybacks can be tax-effective and quite lucrative for income investors, particularly retirees and other low-tax investors.

“Commonwealth Bank and Westpac do have the franking credits to do off-market buybacks, which we think remain likely to occur in the foreseeable future. We think Commonwealth Bank remains the most likely candidate, with a very strong balance sheet and more excess capital than its peers.”

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