ANZ.NZX - Anyone holding?

[Snoopy]

I now want to use the actual dividend data for FY2012 to FY2016 inclusive to build a 'scenario analysis' looking forwards.

The basis for my model is that market conditions over the last five years are broadly representative of what we might expect over the next five years. Yet in recent times, the capital base of the company has been expanded, because of Basel 3 international banking standards requiring a greater capital base to support the existing bank loan book. The expansion of ANZ's capital base has been as a result of a share issue, including a share purchase plan offer to existing shareholders and institutional share placement. Unfortunately for existing shareholders, this means that broadly the same income stream must now be distributed among the greater number of shares now on issue. In other words, unless there is a corresponding growth in profitability from the new share capital (there won't be, because the new capital is required to be used as a beefed up safety net), earnings per share can be expected to decrease in the future.

The following table shows what would have happened if the number of shares on issue today was constant over the previous five years.

	FY2012	FY2013	FY2014	FY2015	FY2016
Gross Annual Dividend (NZ Perspective) 'cps' (final) + (interim)	$1.42	$1.60.6	$1.93	$2.01.9	$1.95
Actual Number of Shares on Issue EOFY	2,744m	2,759m	2,757m	2,903m	2,927m
Actual Dividend %ge of 'Cash Profit'	69.3%	71.4%	67.4%	68.6%	81.9%
Scenario Number of Shares on Issue EOFY	2,927m	2,927m	2,927m	2,927m	2,927m
Scenario Adjusted Gross Annual Dividend (NZ Perspective *) 'cps' (final) + (interim)	$1.33.1	$1.51.4	$1.81.8	$2.00.2	$1.95

There is a problem with the table above. We have been told for a fact that to continue to meet 'modern capital requirements', the dividend will be reduced to a payout ratio of 60 to 65% of the declared 'cash profit' The table tells us that this percentage has been exceeded for all years over the past five years. This, in all likelihood, means that using the cash dividends listed above as indicative for the future means that we are going to forecast future cash dividends to be too high. So what happens if we reduce the payout ratio on those historical records down to 62.5% (the mid point of the 60% to 65% future declared dividend target range) of 'cash profit'?

* In this instance "NZ Perspective" means dividends continue to be expressed in $A, but the $A dividend is a 'gross dividend' because NZ does not recognize Australian Franking Credits. In addition NZ imputation credits are added to the $A dividend using the exchange rate $NZ1 = $A0.95.

SNOOPY