Although it has recovered slightly in recent weeks, the Westpac Banking Corp (ASX: WBC) share price is still down over 9% in the last three months.
Concerns over how the bank levy may impact its dividend appear to be the reason behind the decline.
Is this an opportunity to invest?
I think this decline is a great opportunity for investors to snap up shares in Australia's oldest bank at a fair price.
Whilst the bank levy is likely to have an impact on its business, I don't believe it will force Westpac to reduce its dividend significantly.
By my calculations, I expect the worst case scenario would be a 8 cents per share reduction in its dividend in FY 2018.
Based on its forecast FY 2017 dividend of $1.88, this would potentially mean a dividend of $1.80 in FY 2018. Which at the current share price would equate to a fully franked 5.6% yield.
That would still make the Westpac dividend one of the more generous dividends on the Australian share market and still far better than rival Commonwealth Bank of Australia (ASX: CBA) and its trailing fully franked 5% dividend.
Furthermore, I believe there's a strong chance we will see more out of cycle rate hikes by the banks. Whilst this is not ideal for borrowers, it should help boost the banks' earnings growth over the coming year.
Overall, I continue to believe that Westpac is the best option in the banking sector at present, closely followed by Australia and New Zealand Banking Group (ASX: ANZ).
