Should Westpac Banking Corp (ASX: WBC) shares be a consideration for investors for the dividend?
The Chair of Westpac, John McFarlane, just outlined the things that the bank is doing and seeing in a letter.
What was in the letter?
When Mr McFarlane started in his role just over a year ago, the bank was facing a number of challenges, including COVID-19.
He pointed to the fact that the major bank has just paid a 58 cents per share dividend. That was due to an improvement in earnings performance and the capital position.
Westpac’s leadership believes the actions that the bank is taking will continue to improve the performance and financial strength of the company, which will improve shareholder returns.
The bank has recently reset its strategy to refocus on domestic banking and exit a number of businesses and geographies with the aim of enhancing returns.
Mr McFarlane wrote: “Our 2021 first half performance signals this progress. Cash earnings improved significantly, and we have materially increased our financial strength. This will be enhanced further as capital is released from the disposal of our non-core businesses. Our excess capital and franking credit position should enable the board, at the appropriate time, to consider a return to shareholders.
“With our highly focused strategy in place and a refreshed management team and Board we are firmly focused on executing the CEO’s three priorities of Fix, Simplify and Perform.”
It’s also looking to reduce its cost base to $8 billion by 2024. The 2020 expenses were more than $12.6 million, so that’s a large 37% reduction if it can be achieved. And the bank has plans to achieve this.
The cost reductions will flow from further exits of non-core businesses, simplification of products and processes, automation and digitisation, as well as operating with a smaller and more focused group centre.
What else is Westpac focused on?
The big four ASX bank also said that managing risk remains a major priority and it’s strengthening its risk frameworks, controls, monitoring and risk culture.
But the bank said that the economic environment appears robust and things do appear “generally” to be looking up, subject to the pandemic.
Should it be a consideration for dividends?
Banks have always been a popular pick for income. CommSec numbers suggest a dividend per share of $1.16 from Westpac in FY21 – that translates to a fully franked dividend yield of 4.4%.
However, aside from a one-off release of capital, I’m not sure how strong of an income pick Westpac will be in the long term. There are other ASX dividend shares that might be more appealing for growth and reliability.
