Why this top fund manager is still buying bank shares ahead of dividend paying period


Stating the obvious, big four bank shares have been having a rough time.

The CBA share price has fallen around 30 per cent from its March 2015 levels, with the other big banks showing very similar losses.

In recent days, we’ve seen a Bloomberg article say “the worst may be yet to come” for bank shares.

We’ve seen Morgan Stanley saying the drivers of earnings upside for the banks are hard to identify. The broker wiped an average of 7 per cent off the share price targets of the big banks.

Then we’ve had UBS thinking bank underperformance will continue.

This is because earnings growth has stalled, and that has historically been the fundamental driver of bank share prices.

The same AFR article quotes Morgan Stanley as forecasting National Australia Bank (ASX:NAB) will slash roughly 12 per cent off their dividend payout in the 2019 financial year.

Somebody still loves bank shares

To the relief of the SMSF army — amongst whom bank shares are still revered for their attractive fully franked dividends — not everyone has abandoned bank shares.

In its May month report, Perennial Value Shares for Income Trust noted the recent ANZ (ASX:ANZ), NAB and Westpac Bank (ASX:WBC) interim results were as expected — subdued earnings growth and dividends flat on the previous period. Importantly, the Trust noted, credit conditions remain very benign and the banks are well-capitalised.

Increased holdings

The Trust went on to say bank shares “are currently offering attractive long-term value and during the month we increased our holdings ahead of their dividend paying period.”

ANZ, NAB and Westpac shares are already trading ex-dividend. Dividends will be paid to eligible shareholders in the first week of July.

The Trust says that while the domestic economy has been subdued, recent data is increasingly positive, something that should benefit the Trust’s positions in large cap resources companies “as well as in a range of quality industrial and financial companies which are trading on attractive valuations.”

Overweigh resources positions include Woodside Petroleum (ASX:WPL) shares and BHP Billiton (ASX:BHP) shares.

The Perennial Income Trust portfolio trades on a gross dividend yield of 7.2 per cent versus the ASX 300 gross dividend yield of 5.7 per cent.