Is the Westpac Banking Corp (ASX: WBC) share price a buy for its 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”.
Is The Westpac Share Price A Buy For Its Dividend Yield?
The big four ASX bank has a fully franked dividend yield of 6.6%, or 9.5% expressed as a yield with the franked credits calculated too.
Franking credits are a great boost for Australian investors, no other country has such a beneficial treatment for dividends. Plenty of countries have concessional taxation for dividends, but Australians are lucky that they can get excess franking credits refunded in their tax return.
It does somewhat encourage Australian businesses to pay out more of their profit than they may otherwise – franking credits would just be sitting there unused. But it is important for businesses to re-invest some of their annual profits back into the company for future growth.
When you combine a higher payout ratio with a low earnings valuation, it creates a very high dividend yield. Westpac is priced at under 13 times the estimated earnings for the 2020 financial year. It’s correct to price financial business earnings lower because they can be cyclical and crushed in a downturn, but it sure does boost the dividend yield.
Time To Buy Big Banks For Dividends?
The big ASX banks of Westpac, National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) have always been known for their dividends. But these days they could be even better ideas because of how low Australian interest rates have gone.
Things look even better for the banks with Australian house prices seemingly ending their downwards path.
For a huge dividend yield, ones above 7.5%, the banks may be some of the better choices due to their comparatively low valuation and improving outlook. But, I still think there’s a risk that Australia’s economy isn’t out of the woods due to the ongoing trade war.
The reliable shares in the report below could be even better choices for dividends and long term growth.
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