The Westpac Banking Corp (ASX: WBC) dividend has been on a great run in recent years.
In fact, if Australia's oldest bank were to increase its dividend again in FY 2025, it would mean five years in a row of higher dividends.
The Westpac dividend
As a reminder, in FY 2024 Westpac rewarded shareholders with a fully franked ordinary dividend of $1.51 per share. It also paid out an extra 15 cents per share as a special dividend with its half year results.
This was up from a fully franked $1.42 per share dividend in FY 2023.
Last month, the big four bank released its half year results for FY 2025 and declared a fully franked interim dividend of 76 cents per share, which leaves it well-positioned to surpass the $1.51 per share it paid out in the last financial year.
The team at Macquarie Group Ltd (ASX: MQG) expects another increase. It is forecasting a final dividend of 76 cents share in November, bringing its total dividends to $1.52 per share for the full year.
But what is next for Westpac and its payouts? Let's find out.
Dividend forecast
Unfortunately, Macquarie believes the dividend increases will be over after this year.
The broker believes that bank profitability is peaking, making current dividend payouts unsustainable. And while it thinks the banks will eat away at excess capital before cutting dividends, there's only so long that this can be done. It explains:
Over the past several years, banks have benefitted from high rates, low losses, and substantial capital tailwinds from model optimisations. This has resulted in banks distributing ~$27bn via buybacks and special dividends since 2021. However, with bank profitability peaking, organic capital generation has deteriorated. When combined with a weak earnings outlook and a potential 25bp increase to capital buffers from the removal of AT1s, we think the current level of dividends is unsustainable.
While banks can continue to muddle through and kick the can down the road for a little longer as they consume their remaining surplus capital, we believe they will ultimately need to cut their dividends. We forecast dividend cuts for ANZ, NAB, and WBC.
Macquarie expects another $1.52 per share fully franked pay out in FY 2026 from Westpac, before it is forced to make a significant cut in FY 2027.
For that financial year, the broker believes the Westpac dividend will be reduced by 14.5% to $1.30 per share. Based on its current share price of $33.22, this represents a 3.9% dividend yield for investors.
Macquarie currently has an underperform rating and $27.50 price target on Westpac's shares.
