Is the Westpac Banking Corp (ASX: WBC) share price a buy?
There are few ASX blue chips that create as much discussion about whether they're good value or not as the big four banks. Are Commonwealth Bank of Australia (ASX: CBA), Westpac, Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) cheap… or expensive?
The big banks look pretty cheap compared to what they have traded at since 2014. Westpac in-particular has seen its share price decline by 24% over the past five years and it's down more than 8% over the past year.
Is the dividend enough to make up for the share price decline? Well, yes, but the idea is to achieve dividend growth and capital growth, not for one to cancel out the returns of the other.
It's true that Westpac has a very big dividend yield. Its current dividend yield based on the last 12 months is 10.2%. Seeing as the international share market return has averaged 10% per annum over the long-term you could get market-beating returns from just the Westpac dividend.
Despite all of the problems, Westpac's earnings are holding up. Westpac's FY18 statutory earnings grew by 1% to $8.1 billion, cash earnings were flat at $8.07 billion and cash earnings per share (EPS) declined 1%. Not a bad result.
Westpac is having to deal with royal commission remediation costs, falling housing prices and the bank levy. Indeed, the bank levy cost Westpac $378 million, which was equivalent to 8 cents per share. I think it speaks of Westpac's quality that its earnings were flat despite all of the headwinds.
Foolish takeaway
Westpac is currently trading at 12x FY19's estimated earnings. It's a pretty fair price considering the potential downsides. If you've always wanted some bank shares then now may be a decent time to buy, particularly with the royal commission having finished.
However, I think the only good time to buy bank shares is when they're in the middle of a recession, like the GFC. I think there will be better times to buy bank shares in the future.
