Is the Westpac share price a screaming ASX buy for its 9.4% dividend yield?

Is Westpac Banking Corp (ASX: WBC)'s 9.4% ASX dividend yield too good to pass up?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I think it's fairly safe to say that Westpac Banking Corp (ASX: WBC) has had a horror 2019. It was supposed to be a year of contrition and reflection after the damning revelations that stemmed from the 2018 Banking Royal Commission. Alas, Westpac has instead found itself under siege as we close out the year.

Revelations that Australia's oldest bank is alleged to have facilitated widespread use of its systems by criminal enterprises has sent the Westpac share price to its lowest levels in five years. An unfortunately timed capital raising program as well as hefty cuts to its dividend payments this year haven't exactly helped.

But perhaps Westpac's current share price is starting to look tempting from a value perspective. Income investors would no doubt note that the falling WBC share price has resulted in a starting yield of 6.6% (9.4% grossed-up with franking) being offered today on current prices.

That's a market-leading dividend yield and amongst the highest being offered from the ASX banking sector today. For some comparison, Commonwealth Bank of Australia (ASX: CBA) shares will 'only' net you a yield of 5.35% on current prices (7.64% grossed-up).

Is Westpac a buy for ASX dividend income?

Westpac shares are being put in the garbage bin for a reason, in my opinion. The company is waiting to be hit with a fine for the earlier-discussed criminal activity alleged to have occurred on its watch. Many commentators are expecting that this fine will be the largest in Australian corporate history – and might even top $1 billion. That's a billion dollars that shareholders will have to forgo in the near future.

The capital raising program will also lead to share dilution (with the new shares being issued). That's another blow to existing shareholders and also helps explain Westpac's current share price.

Further, Westpac's most recent earnings per share data (for the trailing twelve months to September 30, 2019) indicates that even with the company's dividend cuts, Westpac is still paying out over 80% of its earnings as dividends. There's certainly not much wiggle-room there and if things don't improve in the banking sector soon, another dividend cut may be on the horizon in 2020.

Foolish Takeaway

From where I'm standing, there's a lot of risk for any investor buying Westpac shares for dividend income today. Even after this year's payout cuts, I don't regard this dividend as 'safe' going into the next decade. But if you have a long investing horizon, a crazy-brave investor might just find some value in WBC shares today.

Motley Fool contributor Sebastian Bowen 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.

More on ⏸️ Dividend Shares

falling healthcare asx share price Mesoblast capital raising
⏸️ Dividend Shares

Sonic Healthcare (ASX:SHL) dividend rises 7%, share price falls after FY21 results

Triple digit profit growth and a solid dividend was not enough to impress investors on Monday.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
⏸️ Dividend Shares

The Adairs (ASX:ADH) dividend more than doubled in FY21

A record financial result will see a generous dividend paid out to Adairs shareholders.

Read more »

A businessman on a road raises his arms as dollar notes rain down on him.
⏸️ Dividend Shares

The Newcrest (ASX:NCM) dividend boosted 129%

Newcrest marks its sixth successive year of increasing dividend payments to shareholders

Read more »

Happy couple laughing while shopping in supermarket
52-Week Highs

August has been a great month so far for the Woolworths (ASX:WOW) share price

We take a look at how shares in the supermarket giant have been performing ahead of the company's full-year results

Read more »

wine glass full of coins
⏸️ Dividend Shares

The Treasury Wines (ASX:TWE) dividend bumped up by 60%

Here's how Treasury Wines dividends for FY21 have stacked up.

Read more »

Young boy cries and covers eyes with torn money on table
⏸️ Dividend Shares

The Origin (ASX:ORG) dividend has dropped 20%

What's happened to Origin's dividends?

Read more »

two people hold a sheet above their head while making a bed in a room featuring homewares.
Retail Shares

How did the Adairs (ASX:ADH) share price respond last earnings season?

The homewares retailer will be looking for another year like last year when it releases its FY21 earnings tomorrow.

Read more »

Two men excited to win online bet
Share Market News

Why the Tabcorp (ASX:TAH) dividend was boosted by 32%

The strong performance of Tabcorp's business will see a combined FY21 dividend of 14.5 cents.

Read more »