Westpac Banking Corp (ASX: WBC) is usually bought for dividends, but is the share price a buy?
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 businesses.
Is The Westpac Share Price A Buy?
There are some investors who are being forced into grabbing for yield because cash in the bank is no longer generating enough of a return. Imagine having $1 million in the bank and only getting $20,000 (or less) from that. Not good enough!
So those income investors are drawn to dividend names they know and have been around for decades. Westpac and Commonwealth Bank of Australia (ASX: CBA) are two businesses that may spring to mind.
Both Westpac and Commonwealth Bank have been solid dividend shares since the GFC. Each year over the past decade we have seen the dividend either maintained or grown. However, the dividends have been cut at Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
However, some analysts think a Westpac dividend cut may happen soon because of the demands from regulators for it to hold more capital. It’s also paying out a lot of customer remediation due to issues related to the Royal Commission.
Is Westpac worth buying for total returns / capital growth?
I believe a company’s share price and dividend can only grow if the earnings are going up. In the FY19 half year result even after excluding the major remediation and other items, cash profit still fell by 5%.
Lower interest rates is having a bad effect on its net interest margin (NIM) and the banks are under public pressure to pass on more of the RBA rate cuts. The main ways for Westpac to grow profit is to improve its NIM or grow its total loan book – which is currently tough.
If Westpac’s profit isn’t going up then the dividend and share price can’t go sustainably higher either, even if it looks cheap at 13 times the estimated earnings for the 2020 financial year.
For blue chip profit and dividends I’d much rather buy the shares in the free report below over Westpac.
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