When it comes to our famous ASX bank shares, it’s the accepted wisdom that most investors both come and stay for the fully franked dividends. But, as bank share investors would know, the past 18 months or so have been a tough time for banking dividends. No one would know that more than shareholders of Westpac Banking Corp (ASX: WBC).
All four of the major ASX banks delivered nasty dividend cuts in 2020, mostly out of necessity. But Westpac was the only big four bank to scrap its interim dividend entirely last year. But now Westpac has restored its biannual dividend payments, let’s take a closer look at what its payout policy is looking like.
How is Westpac’s divided payout ratio looking?
So what did Westpac’s last two dividend payments look like? Well, we had a final dividend of 31 cents a share, paid out on 18 December last year. As well as a 58 cents per share interim payment that investors received back in June. Both came fully franked.
That’s 89 cents per share in total dividends over the past 12 months.
So we won’t get a look at Westpac’s FY21 numbers until the bank releases its full-year results next month. But we can infer what kind of payout ratio Westpac is currently employing for its dividends. The payout ratio is a metric that measures the proportion of a company’s earnings per share (EPS) that it pays out in dividends (and conversely, how much of its earnings the company keeps for its business).
Back in its FY20 results that we saw late last year, Westpac reported cash earnings of 72.5 cents per share. Therefore, the 31 cents per share dividend it paid out a month later represented a payout ratio of 42.76% of its cash earnings. That’s very low for an ASX bank, but makes sense when you consider Westpac skipped its previous dividend.
But what of its most recent interim dividend of 58 cents per share? In Westpac’s half-year earnings report that was released back in May, the bank reported cash earnings per share of 97 cents. That means its interim dividend of 58 cents per share represents a payout ratio of roughly 59.8% of its earnings over the period.
On the current Westpac share price of $25.73 (at the time of writing), this ASX bank has a dividend yield of 3.46%, as well as a market capitalisation of $94.4 billion.