The big four banks have been hammered in 2020 amid concerns that they will be greatly impacted by the coronavirus pandemic.
The Westpac Banking Corp (ASX: WBC) share price has been the worst performer in the group. On Tuesday its shares closed the day at $14.92.
This means the Westpac share price has lost half of its value since hitting a 52-week high of $30.05.
Is this a buying opportunity?
While Commonwealth Bank of Australia (ASX: CBA) continues to be my top pick in the sector due to the overall quality of its business, I do think Westpac’s shares are very attractively priced at the current level.
Although its earnings will take a hit this year from the pandemic, I expect a rebound in FY 2021 and then for things to normalise again in FY 2022.
This could make Westpac a good option for patient income investors that are not in immediate need of dividends.
Although National Australia Bank Ltd (ASX: NAB) is paying an interim dividend, albeit a small one, I’m not overly convinced that Westpac will follow its lead. Especially after it hinted that it will not be raising capital in the near future.
But I expect the dividend payments to return to relative normal in FY 2021. As do analysts at Goldman Sachs.
This morning the broker retained its neutral rating and lifted its price target on the bank’s shares to $17.63. Although this is only a neutral rating, it is worth noting that its price target implies potential upside of 18.2% over the next 12 months excluding dividends.
Goldman Sachs doesn’t expect Westpac to pay an interim dividend, but has pencilled in a 45 cents final dividend. After which, it expects a 101 cents per share dividend in FY 2021 and 133 cents per share dividend in FY 2022.
Based on its current share price, this would mean Westpac offers a fully franked 6.8% FY 2021 dividend yield and 8.9% FY 2022 dividend yield.
This is on the assumption that Westpac’s cash earnings per share bottom at 85 cents this year, before rebounding to 134 cents and then 176 cents in the two years that follow.
Overall, I think the potential capital returns on offer over the coming years and these future dividends make Westpac well worth considering at the current level.
Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
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.
- Why the Fortescue (ASX:FMG) share price is storming higher today – January 25, 2021 3:10pm
- Leading brokers name 3 ASX shares to buy today – January 25, 2021 2:34pm
- Here’s why the Nickel Mines (ASX:NIC) share price is surging 8% higher – January 25, 2021 1:25pm