Westpac Banking Corp (ASX: WBC) shares have a reputation for dividends. Shareholders or prospective investors may be wondering how much passive income the ASX bank share could pay in 2026 with a sizeable investment.
ASX bank shares tend to trade on a relatively low price/earnings (P/E) ratio and have a fairly generous dividend payout ratio, resulting in a compelling dividend yield for investors.
While banks do have significant capital requirements and may need money to invest in initiatives every so often, it's not a surprise to me when banks deliver a large dividend payout for investors.
Let's look at how large the payout could be in 2026.
Analyst forecasts for owners of Westpac shares
The broker UBS currently projects that the ASX bank share could pay a dividend yield of 4.4% in FY26. That projected yield excludes the potential franking credits.
Including franking credits, Westpac could deliver a grossed-up dividend yield of around 6.25%, which is a decent yield and better than what Australians could get from one of its term deposits.
If an investor had $10,000 in Westpac shares today, it could see $440 of cash passive dividend income from the ASX bank share in FY26, or $625 of overall income, including the franking credits.
Is this a good time to invest in the ASX bank share?
Last month, the bank held its AGM and there were two main themes that UBS highlighted.
Firstly, the broker noted that Westpac CEO Anthony Miller is targeting a cost to income (CTI) ratio below the average of its pears and a return on tangible equity (ROTE) above the average of peers by FY29.
Before the AGM, the goal of Westpac was to "improve" those metrics compared to peers. UBS suggested this reveals "improving confidence in UNITE's implementation". UNITE is a key, significant initiative by Westpac to improve performance and profitability. This could play an important role for the passive income in the coming years.
UBS wrote about Westpac's view on UNITE:
UNITE [is] expected to be completed in FY29 and has finalised the scope of 10 work packages with the majority of initiatives on track (8 complete, 51 underway). Current guidance for UNITE spend is expected to increase ~36% to $850-950M in FY26E (~40% of total investment spend FY27-28 and lower in FY29), expensing ~75%.
Questions from the floor were focused on themes that have been discussed in other bank AGMs this year: digital scams, branch closures, sustainability initiatives and efforts as well as AI and job stability were all discussed. Q1 26 update is scheduled to be released on the 13th Feb 2026.
In our view, to achieve these two objectives, strict discipline and consistent progress on Project UNITE are essential.
However, achieving some of the goals could be challenging because UBS expects higher lending growth and higher operating expenditure, primarily due to increased IT costs.
UBS expects owners of Westpac shares to see net profit of $7.26 billion, putting the bank valuation at more than 18x FY26's estimated earnings.
