Australia Bank Stock Love-In Only Strengthens as Shares Sink

  • Retail investors buy most financial shares since at least 2006
  • Biggest banks' dividend yields above 6%, payouts set to grow

Australians’ love affair with bank stocks is only getting more torrid.

As financial shares tumbled last month by the most in more than two years, net buying by individual investors rose to the highest level on record, according to Commonwealth Bank of Australia’s securities unit, the nation’s largest brokerage.

The buying spree defies a multitude of reasons to be bearish, from higher capital requirements and new rules crimping mortgage lending, to a post mining-investment boom economy struggling to kick into gear. Yet bullish moms and pops continue to be drawn by growing dividend yields, already among the highest in the world, and the cheapest valuations in almost three years.

“There’s an intense chase for yield with low rates here to stay and this will continue,” Savanth Sebastian, a Sydney-based analyst at Commonwealth Bank, said by phone. “Banks fit the bill quite well in this low interest rate environment, especially with these dividend yields.”

Australia’s four biggest lenders -- Commonwealth Bank, Westpac Banking Corp., National Australia Bank Ltd. and Australia and New Zealand Banking Group Ltd.-- trade with an average dividend yield of 6.2 percent, the highest level since 2012, according to data compiled by Bloomberg. That’s the highest national average for banks with a market value of at least $10 billion.

Bigger Payouts

Members of the S&P/ASX 200 Banks Index will boost payouts by an average 3 percent over the next three years, according to forecasts compiled by Bloomberg. Australia’s benchmark S&P/ASX 200 Index has a dividend yield of 5.2 percent, more than double the 2.7 percent on the MSCI All-Country World Index.

Net buying of financial shares by individual investors in August was the highest since CommSec began compiling the data in January 2006, beating the previous peak in May 2013. The brokerage, which accounted for 19 percent of market share over the past five years, declined to provide the value of the buying, saying the information was proprietary.

The S&P/ASX 200 Banks Index slumped 13 percent last month, the most since May 2013. Valuations touched the lowest since December 2012. Commonwealth Bank fell 0.8 percent in Sydney Monday, after its shares resumed trading following a capital raising. The other three lenders were at up least 0.9 percent, led by Westpac, which climbed 1.6 percent.

Special rates for fixed bank deposits stood at a 2.55 percent Aug. 31, RBA data show. Rental yields for houses averaged 3.4 percent across the country and the measure for apartments stood at 4.3 percent, according to data from CoreLogic Inc. Goldman Sachs Group Inc. expects the Reserve Bank of Australia to cut its benchmark cash rate by 25 basis points to 1.75 percent in November, and has downgraded its 2016 economic growth forecast to 2 percent from 2.25 percent.

“Retail investors like the dividend story,” Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which oversees about $118 billion, said by phone. “Banks are high yield and that matters for income seekers amid low returns elsewhere. While institutional fund managers can buy overseas bank shares, the domestic market focused retail investors see the current sell down as an opportunity.”

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