Can Westpac shares deliver a competitive dividend yield and 20% upside in FY23?

The future looks bright for Westpac if you ask this top broker.

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Key points

  • The Westpac share price has been on a roll this week despite the RBA lifting interest rates for a fourth consecutive month
  • The bank passed on the full 50 basis point hike yesterday alongside its ASX 200 'big four' bank peers 
  • Meanwhile, Goldman Sachs slapped Westpac's stock with a $26.12 price target and forecasted the bank will increase its dividends in financial years 2022 and 2023

It’s been a busy week for the Westpac Banking Corp (ASX: WBC) share price amid the Reserve Bank of Australia’s (RBA’s) decision to hike the nation’s cash rate by another 50 basis points.

Luckily, one top broker is still expecting big things from the bank. Indeed, it’s been tipped to gain anther 19%.

At the time of writing, the Westpac share price is $21.94. That’s nearly 2% higher than it ended last week.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has lifted 0.9% so far this week while the S&P/ASX 200 Financials Index (ASX: XFJ) has gained just 0.7%.

So, what’s been going on with the banking giant and why are experts bullish on its future? Let’s take a look.

Is the Westpac share price set to surge 19%?

The Westpac share price has been on the up and up this week despite Australia’s interest rate being hiked to 1.85% on Tuesday.

The RBA made the decision to up the offical cash rate for a fourth consecutive month in a continuing effort to battle inflation.

Such moves spell both good and bad news for ASX 200 banks. It means they can reprice their loans and, as a result, increase their net interest margins (generally resulting in higher profits). However, it can also drag on housing prices and increases the risk of mortgage foreclosures.

Westpac followed the Commonwealth Bank of Australia (ASX: CBA)’s lead yesterday, upping interest rates on its home loans and deposits by the full 50 basis points.

But, despite this year’s cacophony of interest rate news, one broker is still notably bullish on Westpac.

Goldman Sachs has slapped Westpac shares with a $26.12 price target and a ‘conviction buy’ rating, as my Fool colleague James reports.

The broker is also tipping the bank to pay out $1.23 of dividends in financial year 2022 and $1.35 in financial year 2023.

That represents dividend yields of 5.6% and 6.2% respectively on its current share price or 4.7% and 5.2% on the broker’s targeted price.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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