Core Viewpoint - The valuation of ANZ Banking Group shares is a significant topic for Australian investors, particularly those interested in dividend income, with current share price around $36 [1][2]. Group 1: Investment Appeal of Bank Shares - The financial/banking industry, including major players like Commonwealth Bank of Australia and National Australia Bank, is favored by Australian investors due to its oligopolistic nature and limited competition from international banks [3]. - ASX bank shares are particularly attractive to dividend investors because of the franking credits associated with dividends [3]. Group 2: Valuation Methods - The Price-Earnings (PE) ratio is a common valuation tool that compares a company's share price to its earnings per share, providing a basic measure of valuation [4]. - ANZ's current PE ratio is calculated at 16.6x, which is below the banking sector average of 18x, suggesting potential undervaluation [6]. - A sector-adjusted PE valuation for ANZ, based on its earnings per share and the sector average PE, results in a valuation of $39.77 [6]. Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is highlighted as a more effective valuation method for banks, relying on past or forecasted dividends and assuming consistent growth [7][8]. - The DDM formula indicates that ANZ shares could be valued at $35.10 using a blended growth and risk rate, while an adjusted dividend payment raises the valuation to $35.74 [11]. - Various growth and risk rate scenarios yield a range of valuations, with the highest being $84.50 at a 4% growth rate and 6% risk rate [11].