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Is the Westpac share price a buy?

Is the Westpac Banking Corp (ASX: WBC) share price a buy?

It has been an odd year for the major ASX banks in 2019, the current share price of around $27.70 is even higher than the initial response to the findings of the royal commission.

With Westpac being able to trace its history back over 200 years, it’s one of the oldest banks in the world, although a few others can trace their roots back to the 1600s.

One of the things I like about Westpac is that it is routinely identified as one of the world’s most sustainable banks – it’s good to be forward thinking.

However, the past is one thing. As investors it’s the future that counts.

Westpac seems to be simplifying its business model by retreating from financial advice with the sale to Viridian Advisory. If Westpac is putting most of its eggs into the Australian mortgage basket then it’s not a development I’m personally fond of, although exiting financial advice seems to be the right move.

The reason why I’m not excited by Australian mortgages is that the the ability to compare a wide range of different loans has given potential borrowers a lot of flexibility to compare options. Other than possible funding advantages, I can’t see how Westpac could be any more competitive than Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) or National Australia Bank Ltd (ASX: NAB). Loans are becoming like a commodity.

It gets even tougher when you think of the additional competition from the second-tier banks of Bank of Queensland Limited (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Suncorp Group Ltd (ASX: SUN) and MyState Limited (ASX: MYS) as well as online-only lenders like ING, ME Bank and the online comparison sites such as Lendi, Finder and Mozo.

I’m not sure that a business with such high levels of competition can outperform an index fund like iShares S&P 500 ETF (ASX: IVV) over the long-term.

Foolish takeaway

Westpac is currently trading at under 12x FY20’s estimated earnings with a grossed-up dividend yield of 9.7%. The numbers seem attractive but I’m not excited about the qualitative factors, I think there are better options for income and total returns out there.

These great ASX dividend shares might be much more resistant to competition and recessions over the longer-term.

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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 MyState Limited and 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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