Today, shares in banking giant, Westpac Banking Corp (ASX: WBC), have fallen 3.5% at the time of writing, as a result of going ex-dividend. The fully franked distribution of 92 cents per share (CPS) will be paid into shareholders' accounts on December 19.
This takes the full year payout to 182 CPS.
Given the sheer size of Westpac, today's price drop has taken around $3.8 billion off its market capitalisation, when compared to its closing price on Friday.
Are Westpac shares cheap?
As a result of today's drop in price, Westpac now trades on a price-earnings ratio (PER) of 13.75, dividend yield of 5.4% and price to tangible book value of 2.83. This compares to a PER of 15, dividend yield of 4.6% and price-book ratio of 1.25 for the broader market.
No comprehensive valuation, relative or otherwise, should be based solely on these simple metrics. However, they do indicate that Westpac's shares are more likely overvalued, than undervalued.
Indeed, the last time Westpac shares traded at their current level (on a PER basis) was in 2007 and 2009. However in 2007, its shares were significantly overvalued and in 2009 (during the fallout of the GFC), earnings per share fell 39% to just $1.25 per share.
This trend, coupled with my own research, leads me to believe investors should tread very carefully around Westpac shares, despite today's price drop.
