APRA Lifts the Lid on Dividends, but Don’t Expect a Return to Pre-COVID-19 Levels

We have increased our fiscal 2021 dividend forecasts across our banking coverage following APRA’s announcement that from 2021, the regulator will no longer require banks to limit distributions to 50% of earnings. We had assumed the restriction would be in place until fiscal 2022, but the improvement in the economic outlook, sharp decline in temporarily deferred loans, and the banks’ capital positions, provide us comfort the move is not too early. The increase to dividends is not material to our fair value estimates. We continue to see Westpac as modestly undervalued, ANZ and National Australia Bank fairly valued, and Commonwealth Bank overvalued. On our updated numbers, the banks trade on fully franked fiscal 2021 dividend yields of 3.5% to 4.5%.