Is the Westpac Banking Corp (ASX: WBC) share price a buy for dividends?
Westpac is one of the big four banks on the ASX and it’s seen as one of the best dividend shares because of its large dividend yield. When you include the franking credits, it has a grossed-up dividend yield of 9.25%.
It has managed to keep paying a dividend of $0.94 per share every six months for the past few years. If it continues to keep paying that same dividend then it could be a good dividend share to hold because it is paying out a (high) portion of its annual cash earnings each year.
But can the big banks can be good long-term investments, particularly at the current prices?
Today we heard that Westpac, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are going to be investigated by ACCC for their mortgage pricing.
Should the big banks have passed on the full rate cut to borrowers? Politicians and borrowers would certainly say yes to that question. Why should bank profits stay stable whilst borrowers don’t get the full benefit?
Recently we also heard that staying loyal to your bank probably means you’re paying too much interest, so this probe will put even more attention on banks.
How can banks be as profitable in the future as they have been in the past with this much attention on their margins? They remain highly profitable even after the imposed bank levy, higher capital requirements and so on. The banks are a popular target.
Banks in the UK have been paying remediation for the PPI issue for many years and I fear that the big ASX banks could also see ongoing repayments for past misdemeanours.
The best way to generate excellent long-term wealth is from businesses creating compounding growth, but the banks seem stuck and unable to move forward.
In the coming years there’s probably going to be even more competition from new competitors like Latitude, Afterpay Touch Group Ltd (ASX: APT), FAANG shares and others that want to steal market share and earnings from the big banks.
Westpac may be a decent buy for dividends, but it may not be good for total returns or growth in my opinion.
Instead of Westpac, I’d rather buy these top dividend shares which have delivered solid income and great capital growth for investors.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. 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.