How safe is the Westpac dividend?

How safe is the Westpac Banking Corp (ASX:WBC) dividend right now?

| 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

The Westpac Banking Corp (ASX: WBC) share price has come under pressure on Wednesday.

In afternoon trade the banking giant's shares are down 4% to $15.44.

Why is the Westpac share price sinking lower?

Westpac and the rest of the big four banks have come under pressure today after the APRA contacted all authorised deposit-taking institutions (ADIs) and insurers regarding their capital management.

APRA told the banks and insurers to limit discretionary capital distributions in the months ahead, to ensure that they maintain the capacity to continue to lend and underwrite insurance. This includes prudent reductions in dividends, taking into account the uncertain outlook for the operating environment and the need to preserve capacity to prioritise these critical activities.

This request has already impacted one bank. Much to the disappointment of income investors, this morning Bank of Queensland Limited (ASX: BOQ) released its half year results and elected to defer its interim dividend.

This has sparked fears that the big four banks may follow suit when they next release their results.  

How safe is the Westpac dividend?

Unfortunately, I think there is zero chance of Westpac maintaining its $1.74 per share dividend in FY 2020. Though, that would have most probably been the case regardless of APRA's request and the coronavirus pandemic.

The question now is what dividend will Westpac pay in FY 2020? This is very difficult to estimate. As well as the tough trading conditions it is facing, Westpac has a potentially substantial fine coming its way in the next 12 months. This is due to the civil proceedings that were brought against it by ASIC in relation to its anti-money laundering failures.

Because of this, I think there is the potential for its interim dividend to be suspended this year. Though, I'm optimistic it will not be the case.

In response to APRA's request, analysts at Goldman Sachs have suggested that Westpac and the rest of the big four will continue to pay dividends. However, it had already reduced its expectations significantly.

For Westpac, the broker expects its dividend to be cut by 34% in FY 2020 to approximately $1.15 per share. This works out to be a fully franked forward 7.4% dividend yield based on its current share price.

Whilst this reduction will be disappointing for existing shareholders, it remains very attractive for non-shareholders looking for exposure to the banks.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »