Westpac Banking Corp (ASX: WBC) is holding its AGM today and there is a fair chance it could become an attractive ASX dividend share again.
Why isn’t Westpac a good dividend share at the moment?
COVID-19 has had a major impact on banks during this difficult period. They dramatically increased the credit provisions in their accounts to make sure they had enough set aside in-case things turned bad.
Westpac reported that its statutory net profit after tax declined by 66% to $2.29 billion in FY20. Cash earnings fell by slightly less, down 62% to $2.61 billion. Cash profit/earnings per share (EPS) also declined hard – down 63% to 72.5 cents.
A significant portion of the profit decline was related to ‘notable items‘. Excluding notable items, cash earnings dropped by 34% to $5.23 billion. As a reminder, those notable items were for things like the after tax provisions and costs for the AUSTRAC proceedings, provisions for Hayne Royal Commission costs, writedowns of intangible assets, and asset sales and revaluations.
The all-important final dividend was 31 cents pare share. This represented 49% of the full year statutory profit, which was essentially the maximum dividend that Westpac could pay under the existing APRA guidance. That dividend represented a final dividend cut of 61.25% and a full year dividend cut of 82%.
Why Westpac could soon be a good ASX dividend share again
At Westpac’s AGM today, the Westpac John McFarlane said: “I am conscious how important dividends are to individual shareholders and know how unhappy you have bene about the decision not to pay a first half dividend as well as the lower dividend for the year.
“We did seek to pay a higher final dividend by having a fully underwritten dividend reinvestment program which avoided impacting our already strong capital but were constrained by the regulatory cap of 50% of statutory profits.
“Going forward, I’m hopeful we will return to a more consistent dividend each half.”
That sounds promising to me. Not only are Westpac’s earnings going to naturally recover from the pandemic impacts, but it also plans to lift its dividend payout ratio higher than 50%.
What could that dividend be?
Looking at CommSec’s estimates, it has a $1.20 per share dividend penciled in for FY23. This equates to a fully franked dividend yield of 6%. That’s a solid yield if you can be patient. But aside from the recovery, I don’t see much long term growth for Westpac’s earnings.
But for me, there are other ASX dividend shares that offer more potential growth and reliability such as Brickworks Limited (ASX: BKW).
