Is the Westpac Banking Corp (ASX: WBC) share price worth buying 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”.
Time To Buy Westpac Shares?
Unlike its big banking peer National Australia Bank Ltd (ASX: NAB) which cut its dividend in its interim report, the 200 year old bank decided to maintain its dividend in its own half year result at 94 cents per share. The dividend hasn’t moved for a few years, which doesn’t help with rising inflation.
When you include the franking credits, that 94 cents per share dividend every six months equates to a dividend yield of 10% which is very impressive in this era of low interest rates.
However, the dividend came at a price. Westpac paid out almost all of its cash earnings to fund the dividend, which doesn’t help strengthen its balance sheet in terms of complying with APRA’s CET1 balance sheet capital ratio requirement by next year of 10.5%.
It’s not helping that the Royal Commission remediation that Westpac is having to pay back is costing shareholders hundreds of millions of dollars and the total cost of remediation is not finished yet.
Westpac reported that its statutory net profit fell 24% to $3.17 billion. The bank also said that cash earnings declined went down 22% to $3.3 billion.
Both of the above profit measurements suffered a big drop because of the $753 million of after tax costs relating to restructuring and customer remediation from Royal Commission issues that I just mentioned.
So Is It A Buy Or Not For Income?
I’m not expert on the banks, but when I see house prices continue to fall, loan competition rising and bad debts creeping up I can’t help but think the dividend is not as safe as some investors think it is.
Instead of Westpac, I would rather get my hands on one of the proven ASX shares in the free report below for the potential for more reliable growth over the long term.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.