The Westpac Banking Corp (ASX: WBC) share price is down more than 6% after the bank released its FY21 result and announced its final dividend.
On top of the dividend, Westpac announced a $3.5 billion off-market share buy-back.
Regarding the buy-back, Westpac Chair John McFarlane said:
Our improved operating performance and positive progress on our strategic priorities, including the completion of a number of divestments, have strengthened capital and allowed us to announce this buy-back. The board carefully evaluated several options and believes this is the most value-enhancing option to distribute part of the group's capital and franking credits.
Westpac dividend
The board decided to pay a final, fully franked dividend of $0.60 per share, to be paid on 21 December 2021.
That brought the total dividend for the 2021 financial year to $1.18 per share, representing a 62% payout ratio of cash earnings, excluding notable items. That represents an increase of 280% compared to FY20.
Westpac says that after its shareholder payouts of the dividend and buy-back, it will still have a strong capital position to respond to uncertainties, and to support growth and its customers.
The bank also noted that the capital position, together with the potential for further asset sales, creates flexibility for the board in its ongoing considerations on capital management.
Westpac noted that when combined with the final dividend for 2021, the bank delivered a total return to shareholders of $5.7 billion.
At the current Westpac share price, it has a trailing dividend yield of 4.9%. When grossed-up to include the franking credits, it increases to 7%.
What about the Westpac result?
In FY21, the business experienced an impairment benefit of $590 million. This reversal from a cost to a benefit helped statutory profit jump 138% to $5.46 billion, whilst cash earnings increased 105% to $5.35 billion. Excluding notable items, the cash earnings went up 33% to $6.95 billion.
The net interest margin (NIM) fell by 4 basis points to 2.04%, though the return on equity (ROE) increased by 372 basis points to 7.6%. Excluding notable items, the ROE increased 212 basis points to 9.8%.
In terms of the actual number, Westpac's balance sheet saw the CET1 capital ratio improve by 119 basis points to 12.32%.
Outlook
A company's thoughts on the outlook could have ramifications for the Westpac share price and the dividend.
Westpac is confident that the Australian economy will rebound over the next 12 months. Whilst uncertainty remains, the major bank thinks that most industries will begin to recover as Australia's two biggest states re-open.
The Westpac CEO, Peter King, said:
Consumer spending will likely increase significantly as states re-open and pent-up demand is released, particularly supported by consumer optimism and sizeable savings.
We expect the Australian economy to expand by 7.4% in 2022, with credit growth expanding 6.8%. Demand for housing is likely to remain elevated but home price increases should moderate to 8% next year.
Next year we expect to reduce our cast base as we had towards our $8 billion cost target from completion of programs under our Fix priority and realise the benefits from divestments.
Whilst the bank is expecting lending growth, it's expecting net interest margins to remain under pressure from low interest rates and competition.
Commsec numbers suggest that the Westpac full year dividend could increase by around 6% to $1.25 per share.
