From Brian Johnston:
The Dividendosaurus – remaining UNDERWEIGHT given concerns around slowing EPS, the risk of capital raising and the risk of dividend cuts
Australian banks peaked in April 2015 at PEs of 15x and Price to Book of 2.2x given the long running “Australian bank AUD dividend yield carry trade”. In short domestic retail investors are so overweight Aus banks that institutional investors are structurally underweight. The initial phase of QE inflated bank earnings (low interest rates reduced loan losses), lowered regulatory capital intensity and allowed the Aus banks to increase Dividend Payout Ratios to ~70% of these peak cycle earnings. As funds flowed into USD benchmarked global income funds they became structural buyers of Aus banks andvaluations were squeezed up. The banks were derated from April 2015 peaks given the extent of capital raisings and growing uncertainty regarding the sustainability of dividends.
