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Should you buy Westpac Banking Corp (ASX:WBC) shares for its huge dividend?

James Mickleboro
Westpac

Although the Westpac Banking Corp (ASX: WBC) share price has climbed almost 9% higher since hitting a 52-week low of $27.60 last month, it still provides one of the most generous dividend yields on the Australian share market.

Based on its current share price, Westpac’s shares offer investors a trailing fully franked 6.2% dividend.

This is significantly higher than the market average and better than peers such as Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ).

These two banking rivals offer investors trailing dividend yields of 6% and 5.8%, respectively, at present.

Another bonus is that Westpac’s shares have not yet gone ex-dividend for its interim dividend. That will happen on Thursday May 17, meaning investors have until the market close on Wednesday to buy shares in order to receive the 94 cents per share pay-out.

Another reason to consider buying shares, in my opinion, is the bank’s attractive valuation. With its shares trading on multiples well below average and at a discount to many of its peers, I think there could be reasonable upside for its share price over the next 12 months.

I’m not alone in thinking this way. Just yesterday Goldman Sachs put out a broker note rating Westpac’s shares as a buy. Furthermore, the broker has placed a 12-month price target of $36.60 on them, which implies potential upside of around 21%. Throw in the 6.2% dividend yield and the total potential return extends to over 27%.

Goldman believes Westpac delivered the strongest result of the big four during the recent round of updates and thinks it can continue the trend through to FY 2019.

Overall, I believe this means that an investment in Westpac provides a compelling risk/reward and that investors ought to consider snapping up shares before they go ex-dividend on Thursday.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.