The Westpac Banking Corp (ASX: WBC) share price fell 1.2% today in reaction to the bank's half-year result.
All eyes were on what Westpac would do with its dividend considering National Australia Bank Ltd (ASX: NAB) just cut its dividend by 16% in its own half-year report.
Westpac declared a dividend of 94 cents per shares, meaning its dividend was unchanged from the prior corresponding result.
The customer remediation (arising from the issues looked at in the royal commission) continues to dent Westpac's profit. It was a big dent this time, cash earnings dropped 23%. Cash earnings were still down 5% after excluding remediation and other restructuring costs.
Stressed loans (of total loans) rose by one basis point for Westpac. This is a very small rise but with the size of Westpac's loan book it's still a large number and a negative change. Under particular focus is the delinquencies in the Australian mortgage portfolio, which continues to steadily rise, even with Australia's record low interest rates.
Investors may have worried that the $753 million after tax remediation would lead to a cut in the dividend, but with cash earnings per share (EPS) of 96 cents it meant the 94 cents per share dividend was fully funded by cash earnings.
To try to counter revenue pressures Westpac is focusing on its costs. The major ASX bank said that it delivered $146 million in cost savings over the half with further cost initiatives ongoing. Westpac is targeting $400 million in productivity savings by the end of FY19. Part of these savings in the half was cutting 788 of full-time equivalent staff. Not nice for staff, but it helps Westpac's bottom line and cost ratios.
Foolish takeaway
Westpac is now trading at a bit over 11x FY20's estimated earnings with a grossed-up dividend yield of 9.9%. Whilst Westpac looks cheap on the estimated earnings for next year, banks can quickly turn sour if some loans go bad, so I'm not excited about the Westpac share price right now with arrears rising and house prices falling.
