How to play ASX bank shares for dividends this reporting season: expert

The ASX is well-known as one of the highest dividend yield payers in the world.

One of the big reasons for this is Australia’s generous taxation rules, which prevent dividend income from being taxed twice.

The franking credits and dividend imputation system dictates that if the business has already paid company tax on the money distributed, the investor does not have to pay income tax on that yield.

The Australian share market is also dominated by the major banks and miners. 

Both sectors are known for large dividend yields. But due to the cyclical nature of mining, banks are the more consistent payers for investors seeking income.

So with this in mind, one expert was asked which are his favourite bank ASX shares and how he would maximise dividend payouts this reporting season.

The 3 best bank shares right now

Shaw and Partners portfolio manager James Gerrish, across his two portfolios, holds these three banks:

“At this stage we don’t see any reason to deviate away from our current portfolio holdings,” he said in a Market Matters Q&A.

Other analysts are somewhat divided on these picks.

According to CMC Markets, eight out of 12 rate Bank of Queensland as a buy. Nine out of 15 recommend buying Macquarie shares.

Meanwhile, Commonwealth Bank is actually very unpopular — 10 out of 17 analysts rated it as a sell.

Commonwealth Bank will report its financials on Wednesday. 

How to reap the dividends this reporting season

As for a dividend strategy, Gerrish suggested staggering the harvest.

“CBA is due to pay its next juicy morsel this month and BOQ in October,” he said.

“Conversely the other three members of the Big 4 don’t pay their next dividends until November, providing plenty of room to switch from a time perspective to garner future pay-outs if value opportunities arise.”

Among the other three major banks, he does have one standout that he would switch to grab those November dividends.

National Australia Bank Ltd (ASX: NAB) would be our preferred choice at this stage.”

Investors are reminded that each stock needs to be held for a minimum of 45 consecutive days in order to claim franking credits from the tax office.

“The rule is designed to prevent franking credits to be claimed by share traders who hold shares for a short period of time and then sell as soon as they qualify for a dividend,” states Aston Accountants.

“The rule applies to all individual taxpayers, entities and SMSF.”

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