Why investors need to have Income Stocks with Good value- ANZ, WBC

  • Nov 04, 2019 AEDT
  • Team Kalkine
Why investors need to have Income Stocks with Good value- ANZ, WBC
Income Stocks

Income stocks are the stocks that pay a regular dividend over the period of time. Income stocks generally offer a high yield on the investment. While there is no specific categorisation of the income stocks, these stocks can be from any of the industries or sectors. Any extra cash flow from profits can be shared with the investors on a regular basis.

Why investors need to have Income Stocks:

Consistent income

The dividend yield shows how much per share a company pays during the year in dividends on a percentage basis. It is calculated by dividing the yearly dividend/share by the price/ share. Income stocks provide a steady source of income to the investors. This income can be used by the investors to reinvest back into the stocks. Income stocks allow investors to profit in two ways. Firstly, through distribution made by the company and secondly through appreciation in the stock prices.

Defensive sector

Most of the companies that pay dividends come under defensive stocks. These stocks are non-cyclical and do not dependent on economic cycles. The demand of income stocks does not fluctuate during the economic crisis and are generally less volatile than the overall market. The defensive sector includes food and beverage stocks, utility and housing companies and healthcare stocks, whose demands are likely to remain at the same level despite changes taking place in the economy.

Solid Performances

The entities paying regular dividends comes out as strong performers and can make distributions to their stakeholders since they have a huge amount of cash. These companies have a sound management system and generally perform better in the long run.

Let us discuss two Income stocks, i.e. Australia And New Zealand Banking Group Limited and Westpac Banking Corporation

Australia and New Zealand Banking Group (ASX: ANZ)

Australia and New Zealand Banking Group is Australia’s leading bank with more than 5 million customers and have assets of $247 billion. The company has more than 28,000 people and operates in Australia and New Zealand markets. The company is counted in 10 largest and most successful companies in Australia.

Customer deposits up by 5% in the full year report

On 31 October 2019, ANZ released full-year report for the period ending 30 September 2019. The financial highlights are:

  • The statutory profit after tax during the period was noted at $5.95 billion, declining by 7 percent on the pcp.
  • Cash profit for its continuing operations was recorded at $6,47 billion, flat when compared to the pcp. Cash earnings per share rose by 2 percent and was at 228 cents.
  • The common equity tier 1 capital ratio was steady, noted at 11. 4 percent, standing at ~$3.5 billion, above APRA’s ‘unquestionably strong’ measure.
  • Return on equity declined to 10 bps, noted at 10.9 percent.

On the business initiatives front, operational improvements and a targeted marketing campaign was followed by more than 30 percent growth in average applications for Australian housing loans. With the conclusion of the transaction of OnePath Life to Zurich Financial Services Australia, ANZ gained a capital benefit if $2.7 billion. During the period, the company’s investment expenditure rose by $185 million aimed at enhancing the consumer experience. ANZi made an investment of $65 million in upcoming growth entities to help create long-term strategic value. Customer deposits and gross lending moved up by 5 percent and 4 percent, respectively.

On the outlook front, the company’s CEO Shayne Elliott mentioned that though the Australian housing market was showing signs of slow recovery, ANZ was anticipating a challenging trading conditions to persist for the immediate future. ANZ anticipated operational enhancements in its home loans segment to aid re-establishing market share in its aimed divisions. The company will have its focus intact in the capital efficiency, especially as it was handling the proposed changes affecting its business in New Zealand region.

For the period closed 30 September 2019, ANZ had declared a dividend of AUD 0.80, which has ex- date of 11 November 2019, record date of 12 November 2019 and payment date of 18 December 2019.

A new addition to ANZ Board

On 4 November 2019, ANZ notified the market on Paul O’ Sullivan’s becoming a part of the ANZ Board. Also, the company would be conducting its AGM on 17 November 2019, in the city of Brisbane, where Mr O’Sullivan would stand for election as a director.

S&P upgrades Tier 1 and Tier 2 Capital Credit Ratings

On 24 October 2019, S&P announced that it has increased the standalone credit profiles of ANZ and other major Australian banks from A- to A. As a result, S&P had upgraded the credit ratings on the Additional Tier 1 Capital and Subordinate debt (Tier 2 Capital) instruments issued by ANZ group by one notch in line with the increase in ANZ’s revised SACP. The revised rating is:

  • Senior debt (long term): No change at AA- (stable)
  • Senior debt (short term): No change at A-1+
  • Basel 3 subordinated debt: upgraded from BBB to BBB+
  • Basel 3 AT1 capital1: upgraded from BB+ to BBB
Resolution for consideration at AGM

On 18 October 2019, the company advised that it has received the resolution under section 249N ‘Members’ resolutions of the Corporations Act for consideration at the Annual General Meeting (AGM) to be held on 17 December 2019.

The resolution represented less than 0.01 per cent of ANZ’s share on issue. The shareholders recommended that the company suspended the memberships of Industry Associations where:

  • The primary function of the Industry Association is to undertake lobbying, advertising or advocacy related to climate.
  • The Industry Association’s record of Advocacy in the last three years demonstrated on balance, discrepancy with the Paris Agreement’s Goal.

The latest financial performance of the company can be read here

Stock Performance

The stock of ANZ last traded at $25.99 on 4 November 2019, dipping by 0.764 per cent from its previous close. The company has approximately 2.83 billion outstanding shares and a market cap of $74.24 billion. The 52 weeks low and high value of the stock is at $22.980 and $29.300, respectively. The stock has given -6.30 per cent return in the last six months and a positive return of 9.77 per cent on year to date basis.

Westpac Banking Corporation (ASX: WBC)

Westpac Banking Corporation is the first Australian bank and one of four major banking organisations in Australia. The bank offers a wide range of customer, institutional banking and wealth management related services via a portfolio of financial services brands and businesses.

Net interest income rose to $402 million in the full-year report

On 4 November 2019, WBC released the annual report for the period closed 30 September 2019. The company recorded the net interest income growth to $402 million or 2 percent versus FY18 period, propelled by the rise of $686 million. Average interest earning rose by 3 mainly from Australian and New Zealand housing, widely offset by a lesser margin.

WBC declared a dividend of AUD 0.80 for the period, which would go ex on 12 November 2019, with a record date of 13 November 2019. It has to be paid by 20 December 2019.

On the outlook front, WBC anticipates GDP growth to rise across 2019 period, and in 2020 as well. For the period ending 30 September 2020, total system credit increase I anticipated to grow to 3.5 percent.

Further, WBC announced that it has launched a capital raising consisting of:

  • A full underwritten $2 billion institutional share placement;
  • A non- underwritten SPP, within which WBC aims to raise ~$500 million.
Acknowledged financial product advice ruling

On 28 October 2019, the company accepted the verdict of Full Federal Court linked to the provision of financial services wherein the Court granted ASIC’s appeal, dismissing the cross-appeal by the company. The verdict was associated with the test case produced by ASIC’s against Westpac Securities and BT Funds linked with calls made to fifteen consumers regarding the rollover of their (superannuation) accounts. The ASIC claimed that the WBC offered “personal advice” and while doing so had violated provisions of Corporation’s Act.

S&P upgraded Westpac’s standalone credit profile and capital instruments

On 25 October 2019, as per WBC’S announcement, S&P Global Ratings raised Economic Risk Assessment of Australia from 3 to 4. The change reflected the orderly decline in the house prices in the past two years following a period of rapid growth. S&P also upgraded standalone credit profile of Westpac from A- to A. the S&P confirmed that this change does affect the senior debt rating of Westpac which has been affirmed at AA-/A-1 +/Stable, but it will increase the ratings on certain capital instruments issued the company by one notch. The below-mentioned securities are impacted;

  • Base III-compliant Tier 2 instruments to BBB+ from BBB
  • Base III compliant additional Tier 1 capital instruments to BBB from BB+

The latest financial performance of the company can be read here

Stock Performance

The stock of WBC last traded at $27.880 on 1 November 2019. The company has approximately 3.49 billion outstanding shares and a market cap of $97.3 billion. The 52 weeks high value of the stock is at $30.050. The stock has generated return of -0.92 per cent in the last six months and a positive return of 13.89 per cent on year to date basis.


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