Why I’m banking on Westpac Banking Corp shares

It has been around two-and-a-half weeks since Britain voted to leave the European Union. Although the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has retraced most of its post-Brexit declines, the share price of Westpac Banking Corp (ASX: WBC) is still down in the doldrums nursing an almost 5% decline.

Does this make Australia’s oldest bank a bargain buy this week? I think it does.

It’s fair to say that we have been experiencing quite a lot of market volatility since Brexit. But if this calms over the next few months, I believe we could see Westpac’s share price rebound and make a run for the $30 mark once again.

As well as this, the bank’s monster dividend is another attractive aspect which I feel goes some way to offsetting any further downside risk. According to CommSec, the drop in the bank’s share price means the market is expecting Westpac’s shares to provide an estimated fully franked 6.8% dividend in FY 2017.

Whilst there are fears floating around the market that Westpac may have to follow the lead of Australia and New Zealand Banking Group (ASX: ANZ) and cut its dividend in the future, I feel confident that it is in a position to at least maintain it.

In its interim results for the six months ended March 2016, Westpac reported a solid 3% increase in cash earnings of $3.9 billion. This was despite operating in a challenging environment which saw higher impairment charges negatively impact its results by approximately $252 million.

With Westpac’s management expecting impairment charges to be much lower in the second half of this fiscal year, I believe it can deliver a solid full year result with low-single-digit cash earnings growth to supports its dividend.

In addition to this, the bank managed to increase its CET1 capital ratio by 171 basis points to 10.5%. This is an important ratio for banks and measures their financial strength by comparing its core equity capital with its total risk-weighted assets. Seeing it increase by this amount was very pleasing and puts it at the upper end of its peers in Australia and across the world.

Overall, I firmly believe that Westpac’s shares could be a great addition to a balanced portfolio this week. The potential share price gains and its market-beating dividend make it a Brexit bargain in my opinion.

Finally, if you already have exposure to the banks then I would highly recommend taking a look at these three new breed blue chip shares instead. Each pays a solid fully franked dividend and like Westpac could climb higher in the next few months if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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