It won't get any better from here for Aussie banks

Australians love their banks. And for good reason. Australia boasts one of the best banking sectors in the world. 

Perennial favourite Commonwealth Bank (ASX: CBA) has returned almost 270% over the last two decades, with a dividend yield ranging from about 3-8%. 

Truly astonishing performance. 

But, according to Mark Landau from L1 Capital, past performance won't be a reliable indicator of future performance. 

"The last 30 years have been the best years for the banks."

"Essentially what you've seen over that period is interest rates falling from 18% to zero, which have inflated property values and enabled a lot more people to take on debt, while bad debt levels have fallen from elevated levels to basically zero, and the cost out story has largely been completed."

However, ditching the banks doesn't mean you need to ditch financials from the portfolio altogether. 

In this wire, Landau suggests one type of financial company that fits the bill with stronger top-line growth, stronger margin expansion, and dividend yields in the range of 6%. He also highlights the supply side story that will be a structural tailwind for Australian commodity companies, and the problem with expensive defensives.  

This article was originally published for Livewire Markets on Tuesday, 26 September 2023.

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