Why you should buy Westpac Banking Corp before Commonwealth Bank of Australia

Credit: Kiwiteen123

Investing in Australia’s big four banks has been an incredibly divisive topic for investors for some time now. There are some that feel the banks should be avoided at all costs, then there are others that think they are a good investment.

I unabashedly fall into the latter of the two groups and have been bullish on Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) in particular for a little while now.

Although I do feel the bull run that we have witnessed in the last month may be starting to lose its legs, I still feel the strong dividends that these two bank shares provide at the moment make them more than worthwhile as investment prospects.

According to CommSec, analysts are expecting Westpac’s shares to provide a fully franked 6% dividend in FY 2017. The same analysts have forecast a fully franked 6.25% dividend for ANZ shares next year. These yields are hard to find on the market and certainly make them tempting investments.

But one bank that investors might want to consider avoiding this earnings season is surprisingly Commonwealth Bank of Australia (ASX: CBA). According to a research note out of Morgan Stanley, the global investment bank is expecting Commonwealth Bank’s full year results to disappoint. Furthermore, it is also anticipating the bank’s earnings per share falling in FY 2017.

As Commonwealth Bank is the most expensive of the big four based on both earnings and book value multiples, I do have fears that a disappointing earnings season could see its share price get cut down. So investors might want to take this into consideration ahead of Commonwealth Bank’s August 10 announcement.

For now I would choose an investment in Westpac over Commonwealth Bank. Whilst Westpac shares may not be as cheap as ANZ’s shares, I feel investors are getting a piece of a high quality bank at a fair price. The strong dividend only sweetens the deal and offsets any downside risks in my opinion.

Finally, if you already have exposure to the banks then I would highly recommend checking these three fantastic blue chips. Each pays a solid, growing dividend and could produce share price gains in the months ahead in my opinion.

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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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