Owning Westpac Banking Corp (ASX: WBC) shares has been rewarding for dividend income for a number of years. The ASX bank share may be attracting ASX income investors, so is it a good option?
Westpac is one of the largest businesses in Australia, with a market capitalisation of $90 billion according to the ASX. The Westpac share price has climbed more than 20% in the past three months. Despite the much higher valuation, it still offers a good dividend yield.
Westpac dividend forecast
The forecast on Commsec suggests Westpac could pay an annual dividend per share of $1.44 in both FY24 and FY25.
At the current Westpac share price, it means the cash dividend yield could be 5.5%, or a grossed-up dividend yield of 7.9%. That's a lot more than what someone can get from a Westpac term deposit.
In FY26, the ASX bank share is forecast to pay an annual dividend per share of $1.46, which would amount to a cash yield of 5.6%, or 8%, when grossed up.
Should ASX income investors buy it?
It appears the bank is likely to pay a fairly consistent dividend over the next few years. Of course, a dividend payment is not guaranteed – that's up to the board of directors to decide based on the level of profit.
Banks are currently facing a difficult environment with strong competition, rising arrears (amid higher cost of living) and lower demand for new credit.
The Westpac first quarter update showed it made $1.5 billion of net profit, which was down 6% on the FY23 second half quarterly average. Earnings per share (EPS) is expected to fall in FY24 and then fall again slightly in FY25.
Earnings usually drive a share price over the longer term, so the recent rally seems to be related to an increase in investor confidence rather than a positive outlook for profit in the medium term.
According to the prediction on Commsec, the Westpac share price is valued at 14x FY24's estimated earnings.
To me, it now seems a bit pricey for the weak growth it's expected to see in the next few years. I think there are other ASX dividend shares that can deliver stronger dividends and more growth in the next three years than Westpac.
