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$753 million profit hit: Is the Westpac share price a dividend trap?

The Westpac Banking Corp (ASX: WBC) share price could come under pressure tomorrow after Australia’s second largest lender flagged it will take a total $753 million profit hit for the six-month period to March 31 2019 due to provisions arising from regulatory problems, restructuring, and customer refunds, among other issues.

The bank is scheduled to hand in its profit report on May 6 and will hope that this list of provisions will allow it to draw a line under a turbulent past year that has covered the wide fallout from the Royal Commission and the bank’s attempt to remodel the BT Investment Management business to be more sound in terms of compliance.

For investors the growing headwinds now look increasingly likely to mean that Westpac’s sacred dividend will come under pressure, with it paying out $1.88 per share over the past year.

This places it on a trailing yield of 6.8% plus full franking credits. An uncommonly high dividend yield on a blue-chip share is usually a sign that professional investors expect a dividend cut and can make a stock a dividend trap for your average ‘mum and dad’ investor.

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Motley Fool contributor Tom Richardson has no position in any of the 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 Scott Phillips.

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