All eyes are on Westpac Banking Corporation Ltd (ASX: WBC) this morning after the bank cut its dividend by 7% to 80 cents per share (cps).
Tighter profit margins and regulatory capital requirements are the big factors putting Westpac's dividend under pressure.
Why did Westpac cut its dividend?
There has been speculation that Westpac would slash its dividend lower when it released its FY2019 results early this morning.
An article in The Australian quoted Morgan Stanley analysts saying Westpac is the "most likely" bank to slash its dividend.
Those thoughts turned to reality earlier this morning as the Aussie bank slashed its dividend to 80 cps and announced a $2.5 billion institutional equity raising.
Westpac's regulatory capital levels have come under pressure which pushed the Aussie bank to raise fresh equity and cut its final dividend.
The Reserve Bank of New Zealand's decision around regulatory capital is also adding to Westpac shareholder headaches in November.
Where should I invest if Westpac cuts its dividend?
Having cut its dividend earlier this morning, I'd expect Westpac to lose its title of highest-yielding ASX banking stock.
Prior to the market open, Westpac shares were yielding 6.74% per annum to just edge out National Australia Bank Ltd (ASX: NAB) and its 6.41% yield.
Outside of the Big Four, Bank of Queensland Ltd (ASX: BOQ) is the highest income-earner with a whopping 7.24% per annum.
However, given the regional bank's share price struggles and inability to attract free-flowing funds, I would rather invest in the Big Four just now.
2019 hasn't been the best year for the ASX banking sector but I think it could have been much worse considering the 2018 Royal Commission final report.
Foolish takeaway
Westpac's full-year results announcement has made for interesting viewing this morning with the dividend cut a major part of that.
Cash earnings for the group fell 4% year-on-year (YoY) to $7,979 million with return on equity (ROE) plummeted 94 basis points to 12.5%.
The bank's New Zealand operations was the only segment to avoid YoY declines in a broadly disappointing result for shareholders.
