The Westpac Banking Corp share price hasn't done much since it released its annual result for the full-year ended 30 September 2017.
As a quick recap, here are some of the highlights:
- Cash profit increased by 3%
- Cash earnings per share increased by 2%
- Net interest margin (excluding Treasury & Markets) was 2.03%
- Common equity Tier 1 capital ratio was 10.6%
- Annual dividend per share unchanged at $1.88
Overall, this wasn't a bad report. It could have been better, when compared to Commonwealth Bank of Australia (ASX: CBA), but it could also have been worse.
The raising of interest rates over the period clearly helped, particularly on interest-only investment loans.
Here's my bull and bear case for buying Westpac:
Bull case
The main reason why retail investors should be interested in Westpac is its generous grossed-up dividend yield of 8.36%. In a world where most term deposit yield figures start with a two, the dividend is very attractive.
Over the long-term the number of properties needed to house the Australian population will continue to grow. The net immigration and number of births will support this. As long as Westpac can keep growing its loan book then it should do just fine over the long-term.
Bear case
However, population growth doesn't mean Westpac won't run into trouble over the next couple of years.
Many Australians have borrowed up to their necks to buy a house or an investment property (or two, or five). Interest rate rises might be good for banks in the short-term but it's not good for borrowers who may not be able to afford repayments.
Mortgage stress is already on the rise with Digital Finance Analytics reporting that mortgage stress has grown by 20% to 900,000 households.
Westpac has a huge loan book and if default rates start rising then the profit and share price could head south.
The other problem I see for Westpac is the growth of 'fintech'. This is a whole assortment of businesses which want to take a small piece of the Westpac pie using technology, which might not hurt much in the short-term, but it could stunt growth.
Foolish takeaway
Westpac may only be suited for investors purely looking for large blue-chip dividends. I believe that investors seeking growth would be much better suited looking elsewhere.
