Is the Westpac share price headed below $30?

Credit: perry carbonell

The Westpac Banking Corp (ASX: WBC) share price has dropped 1.1% today to $31.16, less than the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), which fell 1.6%.

Westpac’s peers Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) saw their share prices down 1.6%, 2% and 2.1% respectively.

Are their more falls on the way?

It’s entirely possible, with investors around the globe selling off what they see as risky assets and anything to do with China seems to come in for the harshest selling. China is Australia’s largest trade partner and we rely on resources exports to China to keep economic growth in positive territory.

Westpac, as one of Australia’s largest companies, typically gets sold off along with the other big three banks when investors get nervous. The big four banks are also closely tied to the economic cycle and Australian property moves. Big falls in residential property prices can have a significant impact on the big four banks given they dominate lending to the sector.

If confidence returns, Westpac will also likely see more investors returning.

One factor that the bank boasts now is a fully franked dividend yield of just over 6%. Gross that up to include franking credits and investors are looking at a return of around 8.6% before tax. ANZ and NAB both have higher yields, but Westpac is often viewed as Australia’s second-best bank, behind Commonwealth Bank. Comm bank currently sports a dividend yield of around 5.3% – which makes Westpac’s yield more attractive.

If the market continues to fall and share prices follow, Westpac’s rising dividend yield might also start to attract investors – almost putting a floor underneath the share price.

Foolish takeaway

Should Westpac’s share price fall below the psychologically important level of $30, I expect plenty of investors to jump on board for the dividend yield. They may get a chance sooner than they think.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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