High dividends and high dividends catalyze the "elephant" dance of bank stocks

Economic Observer reporter Hu Yanming Bank stocks have fought a "turnaround battle" in the spring of 2024.

On April 18, the stock prices of 40 listed banks were in the red, among which China CITIC Bank (601998. SH) once hit the upper limit, Bank of China (601988.SH), Agricultural Bank of China (601288. SH) and other major state-owned banks' share prices continued to rise, hitting record highs.

Although the banking sector saw a pullback on April 19, it performed "brightly" in the long run. Wind data shows that the banking index rose by 16.08% during the year, ranking second in the Wind secondary industry growth list.

Wang Yifeng, chief analyst of the financial industry at Everbright Securities, believes that the dividend yield of A-share listed banks and the yield spread of 10-year treasury bonds are still at a historical high under the background of the current "asset shortage" pressure. Until the spread returns to the mean, the banking sector will still be attractive as a quasi-fixed income product with solid earnings growth, high dividend yield and low valuation volatility.

Shares of many banks hit new highs

On April 12, Industrial and Commercial Bank of China (601398. SH), Agricultural Bank of China, Bank of China, China Construction Bank (601939. SH) issued an announcement to disclose the implementation of the shareholding increase plan of Central Huijin Investment Co., Ltd. (hereinafter referred to as "Huijin Company"). Based on the closing price of the four major banks on April 12, Huijin Company spent more than 5.2 billion yuan to increase its holdings in the four major banks.

After the completion of the shareholding increase plan, Huijin said that it will continue to support the long-term steady development of the four major banks. Huijin Company is a wholly state-owned company funded by the state. A number of brokerages expressed their views that Huijin's move not only brought marginal incremental funds to the market, but also reflected confidence in the market.

On April 15, the Shanghai Composite Index closed at 3,057.38 points, up 1.26%, with the banking sector leading the gains.

On April 16, the Shanghai Composite Index closed lower, but the banking sector remained the top gainer.

On April 17, the banking sector collectively strengthened, and the stock prices of 42 A-share listed banks collectively floated red. The stock prices of Bank of China and Agricultural Bank of China both hit record highs, and the stock prices of Bank of Communications hit a new high in the past decade. On the same day, CITIC Bank closed the daily limit, and the stock price closed at 7.27 yuan, Bank of Ningbo (002142.SZ), Bank of Xi'an (600928. SH), Ping An Bank (000001. SZ) shares rose more than 3%, while China Merchants Bank (600036. SH) shares rose more than 2%, hitting a new high in the past six months.

On April 18, the banking sector continued to move higher, with the share prices of 40 listed banks in the red. Among them, the share price of China CITIC Bank once hit the daily limit, closing at 7.79 yuan, a record high; the stock prices of Bank of China, Agricultural Bank of China, and China Construction Bank continued their previous upward momentum, closing at 4.69 yuan, 7.30 yuan, and 4.49 yuan respectively, hitting a record high; and the share price of Industrial and Commercial Bank of China closed at 5.52 yuan, hitting a new high.

As of the close of trading on April 18, the CSI Bank Index rose more than 16% for the year. In terms of individual stocks, shares of China CITIC Bank rose nearly 50 percent, while those of Bank of Beijing, Bank of Nanjing, Bank of Chengdu, Agricultural Bank of China, Bank of Jiangsu, Shanghai Agricultural Bank, Huaxia Bank, China Merchants Bank and Bank of Changsha rose more than 20 percent.

Shen Juan, a financial analyst at Huatai Securities, believes that compared with the CSI 300 index, the relative income performance of the banking sector since the beginning of the year is outstanding, and regional banks with high dividends and stable operation are leading the gains. The market is highly concerned about the dividend attributes of banks and the performance of asset quality in key areas, and although some high-quality banks are facing short-term performance pressure, increasing the dividend ratio can still boost market sentiment.

Low valuations and high dividends

High dividends and high dividends are the "selling points" that bank executives focus on promoting at the results conference.

A bank president shouted to the market: "Our bank's stock is a stable and reliable choice." On April 2, Sheng Liurong, chief financial officer of China Construction Bank, said at the 2023 annual results meeting: "Some Hong Kong institutional friends said that the 9% dividend yield return made CCB shares his best financial choice last year. ”

Although the performance of listed banks in 2023 is generally not as good as in the past, they are still proud of dividends. According to the reporter's statistics on the 2023 dividend plan of listed banks, it was found that the total cash dividends of the six major state-owned banks exceeded 400 billion yuan, and the dividend ratio reached 30% or more.

China Merchants Bank, Ping An Bank and other joint-stock commercial banks have paid dividends of more than 30%, of which China Merchants Bank has further increased the dividend ratio to 35% of net profit. Miao Jianmin, chairman of China Merchants Bank, said that most shareholders did not make much money on capital gains last year, or did not make any money, so raising a little dividend can improve the overall return of shareholders. Miao Jianmin also said that China Merchants Bank is a value-oriented bank with low valuation and high dividends, and since the dividend payout ratio has increased, it has no intention of (lowering) it again.

Ping An Bank has also increased its dividend ratio to 30% in 2023. Ji Guangheng, president of Ping An Bank, said that it is a natural and unshirkable duty to distribute the money to investors. In the past few years, there have been debts to investors due to capital adequacy issues. In the future, Ping An Bank will continue to work hard to increase the dividend ratio.

Behind the high dividends is the low valuation of banks. Although the banking sector has risen significantly during the year, it has not been able to change the situation that the stock price has fallen below the net value. Wind data shows that as of April 18, the price-to-book ratios of the 42 A-share listed banks were all less than 1. Among them, China Merchants Bank has the highest price-to-book ratio of 0.92, Bank of Chengdu, Changshu Bank and Bank of Ningbo have price-to-book ratios of 0.88, 0.84 and 0.84 respectively, and 11 listed banks have price-to-book ratios below 0.5, such as Huaxia Bank (0.39), Bank of Guiyang (0.37), Shanghai Pudong Development Bank (0.35) and Minsheng Bank (0.34).

With the rise in bank stock prices and the repair of valuations, some market analysts believe that there is limited room for valuation repair of high dividends, and after the stock price rises, the dividend yield will naturally fall.

Guosen Securities research report pointed out that since 2023, due to factors such as the macroeconomic recovery being less than expected, investors' risk appetite has continued to decline, and the dividend strategy has continued to prevail. High-dividend bank stocks have continued to recover from investors' valuations, while high-growth bank stocks with relatively high valuations have continued to decline until early February.

Brokers look at future trends

Four years ago, a banking analyst asked at the results conference of the Agricultural Bank of China: why the stock price of the Agricultural Bank of China is sluggish. At that time, ABC executives responded, "With the current stock price level, ABC is undoubtedly a potential stock and a value stock." ”

Recently, bank stocks have risen continuously, outperforming the broader market and key indices such as the CSI 300 Index, which supports the judgment of ABC executives.

In early April, a research report by GF Securities pointed out that it was optimistic about the absolute return of the banking sector after the end of the first quarter and the beginning of the second quarter. In the subsequent market recovery, the pullback of defensive demand may lead to a decline in the relative earnings of the banking sector. However, GF Securities is still optimistic about the absolute return opportunities of the banking sector in April.

On April 12, the State Council issued the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market" (hereinafter referred to as the "Opinions"). Some institutions believe that after the issuance of the "Opinions", bank stocks may be favored by more funds by relying on the advantages of high dividends.

Sheng Liurong, chief financial officer of China Construction Bank, said that the "Opinions on Strengthening the Supervision of Listed Companies (Trial)" proposed in the "Opinions on Strengthening the Supervision of Listed Companies (Trial)" is being studied, and will take into account various factors such as shareholders' wishes, capital replenishment, regulatory requirements and long-term sustainable development, and promote medium-term dividends in a positive and orderly manner in accordance with laws and regulations.

On April 17, Zhang Yiwei, an analyst in the financial industry of Galaxy Securities, said that from the perspective of the financial data structure in the first quarter, the financing demand of residents has yet to be repaired, and the increase in medium and long-term loans of enterprises is second only to the same period in 2023. Based on the volume and price factors, we continue to be optimistic about the allocation value of the banking sector.

Guosen Securities research report pointed out that since 2023, the market risk appetite has continued to decline, bank performance has faced greater downward pressure, and the valuation of high-growth banks in the early stage has ushered in a relatively large adjustment, and the average price-to-book ratio of the selected high-growth representative portfolio has dropped from about 150% at the beginning of 2023 to about 40% at present. The window period with the most pressure on the performance of the banking industry is the first quarter of 2024, and after the bottoming out of the performance, high-quality banks with low valuations will be favored by funds in pursuit of excess returns.