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Is the Westpac Banking Corp share price a buy for its 9.18% yield?

The Westpac Banking Corp (ASX: WBC) share price is almost at its 52-week low, it’s currently $29.23, it has been above $30 for most of the last year. A year ago the share price was $34.87.

Westpac is the second largest bank and it’s also the second largest company in Australia. It operates a multi-pronged approach with its banking services, it acquired some of its subsidiaries during the GFC when its smaller competitors were in trouble. It operates Westpac, RAMS, Bank of Melbourne, St George Bank and BankSA.

A lot has been made of the revelations from the royal commission into the banking inquiry, although Westpac seems have to faired a bit better compared to its banking peers. However, its share price has fallen alongside Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Westpac relies heavily on the Australian housing market for its earnings. Some think this is a good thing because if banks are lending on houses it should be all okay because ‘they’re safe as houses’. But, things could quickly go backwards if the amount of debt households have overwhelm household budgets. House prices are already going down and this trend could continue for a long time if interest rates continue to rise.

Westpac and the other banks have been accused of giving loans to people that shouldn’t have received them in the first place. This is the practice where potential borrowers overestimate income and underestimate their expenses. Today, Westpac announced it would scrutinise borrowers more closely and it will work with Equifax and Experian to do this.

Foolish takeaway

Westpac is currently trading at 12x FY19’s estimated earnings with a grossed-up dividend yield of 9.18%. The yield does seem attractive and it is trading at decent value, but I don’t think it will give shareholders a strong return over the next couple years.

Instead of Westpac I’d much rather invest in this top dividend stock which I own in my portfolio, it should soundly outperform Westpac between now and 2020.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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