There's some big news (kind of) from the ASX banking sector worth discussing today. And it relates to Westpac Banking Corp (ASX: WBC) shares.
For quite a while, Westpac's fellow big four bank share ANZ Group Holdings Ltd (ASX: ANZ) had the honour (or perhaps dishonour) of being the highest-yielding ASX bank share out of the big four. But as it stands today, that title now belongs to Westpac shares.
Want proof? Well, right now, Westpac shares offer a dividend yield of 6.13%, which naturally comes fully franked. That's slightly higher than ANZ's yield of 6.03% at present. And it runs rings around the present yields of National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) which are 5.43% and 4.37% respectively.
So how has this happened?
Well, it's thanks in large part to the sluggish performance of the Westpac share price itself. A company's dividend yield is derived from two factors. The first is, of course, the raw dividends per share that a company pays out in the first place. But the second relates to a company's share price.
Why do Westpac shares now have the highest dividend yield out of the big four ASX banks?
If an ASX share has a share price of $100 and pays out an annual dividend of $5 a share, then it will have a yield of 5%. But if this company puts its dividends to $2.50 per share, then its yield will drop to 2.5%. Easy to follow.
But say that same company is bid up to $200 a share thanks to the goodwill of investors. Even if it keeps paying out $5 per share, its actual dividend yield will also drop to 2.5%.
But this works in reverse too – a falling share price boosts a company's dividend yield. If that same company fell to $50 a share but kept its $5 annual dividend, its dividend yield would double to 10%.
That's why I mentioned that the title of 'highest-yielding ASX bank share' could be construed as a dishonourable one for Westpac.
So you can see how a company's raw dividends, as well as its share price, both play equal roles in the determination of a dividend yield.
In the case of Westpac, well, it hasn't been a great year for this ASX 200 bank share. Over 2023 to date, Westpac shares have, in fact, gone backwards by 3.8%. In contrast, ANZ shares have risen by a far healthier 11.56%, as you can see below:
NAB has treaded water with its small rise of 0.7%, while CBA is up 2% year to date.
So it is both thanks to the Westpac share price's sluggish performance in 2023, as well as ANZ's outsized gains, that have resulted in Westpac claiming the title of highest-yielding ASX big four bank share. Let's see how long it remains in Westpac's hands.