One thing yesterday’s interest rate cut certainly did was make Westpac Banking Corp (ASX: WBC)’s trailing 6% fully franked dividend yield look even more attractive. Is Westpac a buy?
About Westpac
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.
What’s Changed?
Yesterday, the Reserve Bank of Australia (RBA) made the decision to cut the cash rate yesterday for the third time this year, bringing it down to a record low of 0.75%.
Despite the interest rate cut Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) did not pass on the full rate cut to most of their home loan customers.
Westpac is yet to announce changes to its rates. Although, the other banks only passing on part of the rate cut does suggest that they are starting to feel pressure on their net interest margins (NIM), which could result in lower profits going forward.
This brings us back to Westpac’s dividend.
It’s important to remember that dividends are not like term deposits or bond coupon payments. Dividends can change at any time depending on the profitability or dividend policy of the dividend payer.
In Westpac’s case, the bank is increasingly coming under pressure from lower rates and it’s becoming a tough environment for the bigger players. That’s why we saw NAB cut its dividend earlier this year.
Time To Buy Westpac?
Westpac’s trailing 6% dividend yield certainly looks attractive, but it doesn’t necessarily look sustainable to me. When you’re looking for dividend income, you should be looking for a company that can maintain or, better yet, increase its dividend each year.
That’s why I think there are better options than Westpac for a sustainable dividend yield. For three examples, grab a copy of the free investment report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
