Question 1:  Last year, ANZ for the first time in 20 years did not provide a fully franked dividend and paid out at 70%, citing lower profits from its Australian operations to be the reason.  On the basis that the explanation will continue, is there a strong possibility that it will continue to pay a partially franked dividend compared to the other big three banks, which will make a significant difference in terms of grossed up dividend, especially over the longer term?. I realise in July they paid out a fully franked dividend, however the overall dividend was obviously significantly cut in this case.  What are your thoughts on ANZ and its future with fully franked dividends?

Answer: I would assume that for FY21 and subsequent years, ANZ’s dividends will only be 70% franked. This is what the company said at the start of the year, and is a function of their revenue mix between Australia and New Zealand.

In FY20, APRA introduced a Covid-19 inspired temporary restriction on dividends, saying that banks shouldn’t pay any more than 50% of statutory profits as dividends. Because the ANZ dividend was cut by so much (from 80 cents to 30 cents), it could afford to fully frank the 30 cent dividend.

The market expects this restriction to be lifted, and bank profits to improve, as the pandemic winds down. Accordingly, the expectation is that ANZ will increase its dividend in FY21. While full franking cannot be ruled out, I would be planning on the basis they have already outlined.

Question 2: I own shares in Link (LNK). It has been pretty disappointing, but now a private equity group has announced a takeover at $5.20 per share. How should I play it?

Answer: There is obviously some uncertainty as to whether the offer will go ahead, and that’s why despite the offer price, the shares are trading at $4.99. It is a ‘non-binding, indicative’ proposal, subject to several conditions including due diligence and the bidders obtaining financing. The largest shareholder, Perpetual, who owns about 9.65% of the company, has said that in the absence of a superior offer, it will support the bid and accept. This gives it some chance of succeeding. This all said, unless you need the cash, I would listen to the Board’s advice and take no action for the time being.

Question 3:  My son wants to use the CommSec Pocket to invest. It’s a micro-investing app that charges brokerage of just $2 up to a $1,000 trade. You can only buy seven ETFs (exchange traded funds). He wants my advice on which ETF to buy. What should I say?

Answer: These are the seven ETFs available on CommSec Pocket:

There is obviously no right or wrong answer to this question, and any of these could be suitable given investment horizon, objectives, need for income or growth, personal interest etc. But let me articulate my thought process.

Firstly, I am going to assume that your son is ‘youngish’ and that his investment timeframe is long term. That means go for growth, so I rule out SYI. Next, I am going to stick with something a little closer to ‘home’ and/or personal connection – so this rules out IOO, IEM and IXJ.

So that leaves three – the Aussie share market through IOZ, Sustainability Leaders (if he is big on environmental concerns) or Tech Savvy through NDQ.

If he is into tech, go for NDQ. Green fingers go for ETHI, otherwise, go for IOZ. When he hears that the share market has gone up by 1%, he will know that the value of his Pocket portfolio has also gone up by 1%.