The Westpac Banking Corp (ASX: WBC) share price is up around 4.5% year-to-date. But what are they really worth?
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”.
Rising Costs & Transition Away From Advice
Following the Royal Commission, Westpac was recently forced to pay significant customer remuneration. This hurt its profit. Most of this remuneration is in relation to their financial advice business and the remainder from business and consumer banking services.
As a result, some analysts have downgraded their forecasts for Westpac’s profit, and their valuation of the shares.
However, as Westpac moves away from the personal financial advice space, these costs should start to disappear. The financial advice business was a loss-making one so, hopefully, Westpac can take the money and put it towards something yielding a higher return. They will now be moving to a referral model of financial advice.
The move away from the loss-making business was received favourably by investors. This Rask Media article goes into more depth on the recent changes.
High Dividend Yield
Westpac shares currently offer a dividend yield of over 7%. Dividends have been very stable over the last five years, gradually increasing since 2014. While this is favourable, Westpac’s dividend payments could be risky for the same reason that National Australia Bank Ltd’s (ASX: NAB) dividends are risky. Factors such as diminishing margins, falling property prices and franking credit uncertainty could all impact the dividend yields of the big banks in 2019.
What Do The Analysts Think?
According to The Wall Street Journal, analyst consensus is a hold rating for Westpac.
There are five buy ratings, five hold ratings and three sell ratings. It should be noted that over a three-month period, buy ratings have slightly decreased and sell ratings have slightly increased. The average price target is $27.60, around $2 higher than the current share price.
Therefore, analysts seem convinced that Westpac has some room for growth, and the dividend yield is tempting. As has been the case for the last six months though, the banks are facing considerable uncertainty, therefore, I’d rather focus on other reliable, dividend-paying ASX shares, such as the three shares in the free investing report below.
NEW INVESTING REPORT - SEP. 2019!
Finding ASX shares offering exceptional long term growth and dividends over 3% is rare. Our expert investors have just released a FREE investing report which reveals 3 proven ASX shares.
These three companies have proven themselves to be reliable dividend + growth shares over a decade. Click here to get instant access to the investing report -- updated September 2019.
Absolutely no credit card details or payment required.
Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.