It’s one of the oddities of the share market that sometimes when news is good, share prices head down.
In the past week two of Australia’s major banks have beaten expectations only to have their share prices marked down by investors.
Westpac today posted an 8% rise in cash profit to $3.77 billion for the six months to the end of March and announced an interim dividend of 90 cents a share, up from 86 cents.
Despite this improvement in results, Westpac shares were down 1.2% to $34.45 today.
The ANZ’s share price fell 1.16% to $34.07 last week even though it delivered an 11% improvement in cash profit to $3.5 billion and an fully franked interim dividend of 83 cents, up 14%.
The same thing happened at the same time last year as this chart of Westpac prices shows, with the stock falling before going ex-dividend (marked by the yellow line):
Michael McCarthy, Chief Market Strategist at CMC Markets, says it’s interesting that selling in 2013 and in 2014 started before the share went ex-dividend, a point in time when shares are expected to fall as they lose the weight of the paid out dividends.
“One of the key drivers in the huge appreciation in bank share prices over the last 18 months has of course been dividend yields,” he says.
Now that Westpac’s results are on the table, investors have to ask themselves: will the share price fall by greater than the dividend payout?
And the answer, if we take investor selling as a guide, is: yes, they do believe the share price will fall by greater than the dividend amount.
“It’s important to note that the big players, the fund managers, are not acting today on the banks and Westpac in particular,” McCarthy says.
“They’ll digest the result, their analysts will go through it, they’ll get the broker research and at the earliest they will be acting in the market tomorrow.
“But it’s been that huge increase in the registries of banks of mum and dad investors which I believe is driving this sort of behaviour.”
This was something the market saw for the first time last year and McCarthy believes it is a function of the current highs of bank stocks.
Last year, Westpac’s slide started before its dividend, went lower after the dividend and traded down substantially before finding new support.
“Once the share price drops enough the dividend yield argument becomes compelling again and in they pile,” McCarthy says.
Of course, that dividend question isn’t the only factor hitting the banks. Talk of a special debt tax or levy to be announced in the May 13 budget tends to destabilise the market.
“Westpac is down today but all the banks are down,” McCarthy says “There’s pressure on the whole sector. And they’ve become victims of their share price success.”
ANZ was trading down 1.165% to $33.94, the National Australia Bank (NAB) down 0.897% to $34.25 and the Commonwealth down 0.49% to $78.75.
The NAB announces its results on Thursday. If history repeats itself, NAB’s share prices will follow Westpac down:
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