If Westpac Banking Corp (ASX: WBC) can at least maintain its dividend in FY 2017, investors can look forward to a fully franked 6% yield based on the current share price.
This huge dividend is not only one of the best in the banking sector, but is also significantly better than the market average yield of 4.4%.
Whilst a good number of investors have an aversion to the banks, I believe the generous dividends they provide make them great additions to a balanced portfolio.
With its shares changing hands on a price-to-book ratio of 1.8, I think Westpac is about fair value now. It may not be as cheap as its rival National Australia Bank Ltd. (ASX: NAB), but I'd be happy to pay more to own what I deem to be a higher quality bank.
Earnings growth may be slowing, but I remain confident that Westpac will find enough growth in the next few years to keep its share price and dividend edging higher.
One example of this is through interest rates. Although not great for borrowers, Westpac's decision to hike interest rates out of cycle with the Reserve Bank is likely to be a big boost to the bank's top line.
According to The Australian, analysts at Macquarie expect Westpac to pocket upwards of $160 million in additional revenue from the move with no meaningful change in market share.
This is because National Australia Bank and Commonwealth Bank of Australia (ASX: CBA) have also raised rates this week and Australia and New Zealand Banking Group (ASX: ANZ) is largely expected to follow suit in due course.
It really is a win-win situation for the banks and proves once again that the oligopoly remains as strong as ever. So with Westpac providing such a big yield, I would suggest investors snap it up now if they don't already have significant exposure to the banks.
