Is the Westpac (ASX:WBC) share price a buy for dividends?

Are Westpac shares worth considering for dividend income?

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Could the Westpac Banking Corp (ASX: WBC) share price be worth a buy for the expected dividend income over the next couple of years?

Westpac is one of the largest banks on the ASX along with Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).

The Westpac share price has recovered strongly since the bottom of the COVID-19 crash. However, at the time of writing, the Westpac share price gain of 11% over the last year is less than the return of the S&P/ASX 200 Index (ASX: XJO) which has gone up 14%.

However, plenty of investors aren’t looking at the big four banks just for the share price movement. The dividend also can be an important factor.

What dividend might be paid in FY22?

During the last financial year, the board of the big four bank decided to pay a dividend of $1.18 per share. At the current Westpac share price, that translates to a grossed-up dividend yield of 7.8%.

It also released more capital to shareholders in the form of an off-market share buy-back of up to $3.5 billion. In making that decision, the board looked at the improved economic outlook, higher earnings and progress on its strategic priorities, particularly the completion of a number of divestments, which contributed to a “strong” capital position.

Westpac said that after the buy-back, it would continue to have a strong capital position to respond to uncertainties, support growth and its customers. The capital position, together with surplus franking credits and the potential for further asset sales, creates flexibility for the board in its ongoing considerations of capital management.

In terms of the upcoming dividends, every analyst has their own view on how big the dividend could be.

According to Commsec, Westpac could pay an annual dividend of $1.22 per share in FY22 and $1.30 in FY23. At the latest Westpac share price, that translates to forward grossed-up dividend yields of 8.1% and 8.6% respectively.

However, there are also other estimates too.

The brokers at Citi think that Westpac could pay an annual dividend of $1.40 per share in FY22 and $1.55 in FY23. That would translate into forward grossed-up dividend yields of 9.3% and 10.3% respectively.

Then there is another set of dividend of estimates from Macquarie. The estimate for the annual dividend in FY22 is $1.20 per share and in FY23 it’s $1.25 per share. That turns into a grossed-up dividend yield of 8% and 8.3% respectively.

Is the Westpac share price a buy?

Of the two brokers mentioned, one thinks it’s a buy, whilst the other is ‘neutral’ on the bank.

Citi thinks that Westpac shares are a buy, with a price target of $27.50. That’s almost 30% higher than where it is right now.

Macquarie is the broker that is neutral on the business. However, the price target is $25.50, which is still almost 20% higher than the current level.

Should you invest $1,000 in Westpac right now?

Before you consider Westpac, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Westpac wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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