Westpac Banking Corp (ASX: WBC) shares have long been popular with passive income investors.
That is not surprising. Australia's major banks regularly return billions of dollars to shareholders through dividends, and those dividends are often fully franked.
For many investors, that combination of cash income and franking credits is a major part of the appeal.
And even if you do not own Westpac shares in your own portfolio, there is a fair chance your superannuation fund has exposure to Australia's oldest bank. That means Westpac's profits, dividends, and share price performance can have an impact on a very large number of working Australians.
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What dividends are forecast?
The market is expecting Westpac to deliver earnings per share of $2.12 in FY 2026 and $2.24 in FY 2027.
From this, the bank is forecast to pay fully franked dividends of $1.56 per share in FY 2026 and then $1.60 per share in FY 2027.
That means the forecast dividends would represent payout ratios of approximately 74% and 71%, respectively.
That is important because dividend sustainability matters. A high dividend can look attractive, but investors still need the earnings base to support the payment.
In Westpac's case, the forecasts suggest that the bank is expected to generate more than enough earnings to cover its dividends, while still retaining some profit within the business.
How much passive income could $8,000 generate?
Westpac shares ended the week at $35.01.
Based on that share price, an $8,000 investment would buy approximately 228 Westpac shares.
If Westpac pays the forecast FY 2027 dividend of $1.60 per share, those shares would generate approximately $365 in cash dividends.
That equates to a forward dividend yield of about 4.6%.
Because the dividend is expected to be fully franked, eligible Australian investors may also receive franking credits. On a $365 cash dividend, the franking credits could be worth upwards of $157, lifting the grossed-up value of the income to approximately $522.
It is important to remember that this does not mean every investor will receive the same after-tax benefit, because franking credits depend on personal tax circumstances.
But for investors who can use them, fully franked bank dividends can be particularly valuable.
Are Westpac shares a buy?
The dividend outlook looks solid, but broker sentiment is not especially bullish at present.
At this stage, none of the major brokers have buy ratings on Westpac shares.
However, Citi has a neutral rating and $37.50 price target on the bank's shares. Based on the current share price of $35.01, that implies potential upside of approximately 7%.
When combined with the forecast FY 2027 dividend yield of around 4.6%, the total potential return would be nearing 12% if Citi's recommendation proves accurate.
Overall, Westpac may not offer the explosive growth potential of some ASX shares, but it remains a major profit generator, a major dividend payer, and an important part of Australia's financial system.
