Big four ASX bank Westpac Banking Corp (ASX: WBC) has a grossed-up dividend yield of 9.25%, is the share price a buy for this reason alone?
It’s very hard to live a comfortable standard of living from term deposits unless you have several million dollars in the bank, which might be an inefficient allocation of money unless there’s a market crash soon.
Dividend investors have long been drawn to the big four ASX banks of Westpac, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
However, longer-term shareholders of Westpac, ANZ and NAB have seen an income cut. Westpac and NAB cut their dividends by mid-teen amounts whilst ANZ reduced the franking credit level.
The current Westpac yield may be around 9.25% but that’s only after a share price fall and a dividend cut. I only want to invest in businesses that are going in the right direction. Can Westpac turn its profit around soon?
Westpac is expecting a very large fine from AUSTRAC for its failure to report some international transfer transactions to AUSTRAC, which cost the CEO his job. Royal commission remediation continues to feature in bank reports and there’s no end in sight yet. FY20 is going to have some more painful one-off costs.
Banks are also facing higher capital requirements in Australia and even higher capital requirements in New Zealand which is likely to reduce profitability a little. The New Zealand proposed requirements could see more profit retained in the country until the proposed levels are reached.
The return to growth of the Australian housing market is definitely a good thing for Westpac as it lowers the chance of bad debts.
Westpac is currently trading at 14x FY20’s estimated earnings. If Westpac’s dividend isn’t going to go much lower then it could be a medium-term opportunity to buy shares of Westpac for income, but I think there are other dividend shares out there with better growth opportunities.
The post Is the Westpac share price a buy for the 9.25% dividend yield? appeared first on Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020