Can Westpac shares really deliver 15% upside AND a 6% dividend yield?

This could be the bank share to buy for big returns according to Goldman Sachs.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Westpac shares could have double-digit upside according to Goldman Sachs
  • The broker also expects a generous dividend yield from its shares
  • Goldman has Westpac on its coveted conviction list

If you're looking for exposure to the banking sector, then Westpac Banking Corp (ASX: WBC) shares could be worth considering.

That's the view of analysts at Goldman Sachs, which believe the banking giant's shares could provide investors with strong gains and big dividends.

Young investor sits at desk looking happy after discovering Westpac's dividend reinvestment plan

Image source: Getty Images

What's on offer with Westpac shares?

According to a note released this morning, the broker believes that Westpac shares are trading at a level that makes them very cheap.

In fact, its analysts estimate that "the stock is trading at a 24% 12-month forward PER discount to peers (historically a 3% discount)."

As a result, it sees scope for a significant re-rating from current levels and has retained its conviction buy rating on its shares with a slightly trimmed price target of $25.86.

Based on the current Westpac share price of $22.57, this implies potential upside of 15% for investors over the next 12 months.

But wait, there's more!

Don't forget the dividends

Goldman is also expecting the bank's full-year dividends to increase from $1.25 per share in FY 2022 to $1.44 per share in FY 2023 (and then to $1.50 per share in FY 2024).

This equates to a fully franked 6.4% dividend yield this year based on where Westpac shares are currently trading.

Goldman commented:

We reiterate our Buy recommendation (on CL) on WBC given: i) while NIM pressures are accelerating across the sector, WBC's shorter-duration replicating portfolio, and current balance sheet performance, should see its NIM outperform peers; ii) despite WBC recently revising its FY24E cost target to A$8.6 bn (from A$8.0 bn), the bank's performance on cost management remains strong in this inflationary environment, and we forecast a 9% step down in underlying costs over the next two years; iii) on our estimates, the stock is trading at a 24% 12-month forward PER discount to peers (historically a 3% discount), and iv) our TP of A$25.86 offers 23% TSR.

Motley Fool contributor James Mickleboro has positions in Westpac Banking. 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 Westpac Banking. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A woman with her hands over her face splits her fingers over one eye so she can peep through it.
Bank Shares

Westpac shares tumble to 52-week low on Thursday: Can they rebound?

Find out what brokers forecast for the ASX bank stock over the next 12 months.

Read more »

Man holding different Australian dollar notes.
Bank Shares

By August 2027, CBA shares could turn $15,000 into…

Here’s what could happen with CBA shares…

Read more »

A woman in a red dress holding up a red graph.
Bank Shares

How high will Judo Capital shares go? Brokers have their say

It's looking like time for these shares to rebound.

Read more »

ASX 200 bank share trading depicted by red buy and sell dice tumbling across a sheet of data in colourful graphics
Broker Notes

With $30 billion in FY26 income, should I buy CBA shares today?

A leading analyst digs into the outlook for CBA’s slipping shares.

Read more »

Calculator next to money.
Bank Shares

Is the NAB share price a buy for its 6% dividend yield?

Is this ASX bank share a buy for dividend income?

Read more »

Arrows with the words up and down.
Bank Shares

2 ASX 200 bank stocks making BIG moves today on results

Investors are piling into one ASX 200 bank share on Tuesday while abandoning a second. But why?

Read more »

Man working on his tablet with hologram of a world map and financial-related charts.
Bank Shares

Bendigo and Adelaide Bank posts FY26 profit as it commits to risk overhaul

Here's what the regional bank expects to report for the year.

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank.
Bank Shares

Here's the dividend forecast out to 2028 for CBA shares

Here’s what CBA is expected to do with its dividend over the next two years…

Read more »