ASX bank stocks have always been well-known for providing generous streams of franked dividend income, thanks in large part to decades of delivering just that. Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) make up two of the big four ASX banks, and thus benefit enormously from this reputation.
There wouldn't be too many retirees and income investors in Australia whose portfolios don't include at least one of these two banks right now.
But let's assume an income investor is torn about which of these banks to buy today. Which would be the better option: CBA or Westpac?
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CBA shares vs. Westpac stock
At first glance, the answer might appear obvious to many ASX investors. CBA is one of, if not the most beloved, shares on the ASX. It occupies the top spot on our local stock market, for one. That's partly thanks to the tidal wave of exuberance over 2024 (up more than 22% year to date) that has seen CBA shares hit record high after record high. The latest of these came just yesterday morning.
That latest high watermark of $138.60 would have arguably been unthinkable even three months ago.
What's more, Commonwealth Bank is almost universally regarded as the country's strongest bank, with the highest-quality management team at the helm.
Unlike Westpac, CBA has also increased its dividends with comforting regularity. This month's freshly announced final dividend of $2.50 per share (naturally fully franked) is the highest dividend CBA has ever announced.
In contrast, Westpac has yet to exceed the 94 cents per share dividends its investors enjoyed in 2015. This bank's last dividend was the 75 cents per share interim payment investors bagged in June. To be fair, that also came with a 15 cents per share special dividend.
But before that, shareholders received a 72 cents per share interim dividend in December last year.
Despite all of this, I think Westpac is the better buy today if an investor wishes to maximise franked dividend income from their ASX shares.
Why? Well, it comes down to one simple factor: CBA's dividend yield.
The sharp rise in the CBA share price over the past year, in particular, has no doubt been wonderful for existing shareholders. But there is also a severe downside to this rise in the form of the dividend yield available from this ASX bank stock today.
Show me the money
A rising share price pulls down a company's dividend yield if its raw dividends per share don't keep up with the growth. CBA's newly announced dividend hike is welcome, to be sure. However, it has not kept up with that more than 22% share price gain over 2024 alone.
As a result, CBA shares now trade on a dividend yield of just 3.34%. That decidedly unbanklike yield is far less than what Telstra Group Ltd (ASX: TLS) and Coles Group Ltd (ASX: COL) offer today, let alone the other ASX banks.
In contrast, Westpac shares offer investors a fully-franked yield of 4.84% at current prices.
Westpac's recent dividends, while not as constantly on the up as CBA's have been, still remained solid over recent years.
If CBA and Westpac traded at a similar valuation and with only a small difference in yield, I would pick CBA shares hands down. But we have to play with the cards we're dealt. With our current hand, I believe Westpac is the better buy for dividends today.
