Is the current Westpac Banking Corp (ASX: WBC) share price a buy for the 10% dividend yield?
Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business. Its name is a portmanteau of “Western” and “Pacific”.
Is Westpac worth buying for the 10% dividend yield?
Westpac is the second biggest Australian bank. It’s behind Commonwealth Bank of Australia (ASX: CBA) but ahead of Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
The big ASX banks have long been known for their exciting dividend yields. Retiree investors love them. Where else are you going to find a business that provides such a large dividend yield (including the franking credits).
Westpac’s dividend has come a long way over the past two decades. In 2000 its annual dividend payment was $0.54 per share and the last year of Westpac dividends amounts to $1.88 per share.
But the dividend growth has come to a halt over the past few years. The annual dividend per share hasn’t changed since 2016, although the total dividend paid by Westpac has been increasing due to more shares being issued to the market.
The big question about the Westpac dividend is whether it’s sustainable. At the moment it is because Westpac only paid out $1.88 of $2.362 cash profit per share (EPS) in FY18.
If Westpac’s profit doesn’t fall much further then an investor might be able to assume the dividend won’t be reduced. The Royal Commission costs are expensive for Westpac, but they are coming in different reporting periods. If all of these costs had been recognised in one result the dividend may have been cut.
The only other problem that Westpac has to face is the falling Australian house prices. Melbourne house prices dropped 0.8% and Sydney house prices fell 0.9% in March 2019. This could have a two-fold effect. First, it raises the possibility of loans being unpaid, leading to higher bad debts. The second is that it stunts credit growth, both the size and demand for loans could fall.
Falling house prices are the main reason why I’m avoiding bank shares at the moment. I would rather invest in the one of the reliable and proven ASX shares outlined in the free report below.
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