It's been a tough start to the trading week for the S&P/ASX 200 Index (ASX: XJO) and many ASX 200 shares this Monday. At the time of writing, the ASX 200 has slumped by 0.46%, leaving the index at around 9,220 points. One of the ASX shares contributing more than most to that loss is Westpac Banking Corp (ASX: WBC).
It's been a big day for Westpac shares, and unfortunately, not in a good way. This morning, the ASX 200 bank stock posted a third-quarter update, and the reaction has been savage.
On Friday, Westpac shares closed at $37.93 each. This morning, those same shares opened at just $36.61, down a nasty 3.5% or so. The falls continued, with the bank descending to $35.70 at one point, down a horrid 5.88%. The selling seems to have stabilised at the time of writing, but Westpac remains down by a hefty 4.6% at $36.20 a share.
One of the most sobering statistics in Westpac's report, and the one that is arguably responsible for the sharp share price movement we are seeing, was a 20% drop in average mortgage applications. Yes, Westpac revealed that it had averaged 29,000 mortgage applications a month over its third quarter, but this had fallen to 26,000 a month from 15 May to 31 July. That happens to coincide with the changes to capital gains tax and negative gearing that were announced in the May federal budget.
So it's clear that these changes, likely not assisted by the three interest rate hikes we've seen in 2026 so far, have put a major dent in Westpac's mortgage machine.
As an ASX bank, Westpac is, of course, highly reliant on mortgages to fund its profits and, by extension, dividends.
So does this mean that the Westpac dividend is now in danger?
Image source: Getty Images
Westpac shares plunge 5%, but what about the dividend?
Well, to answer that question, let's look at how Westpac's dividends are standing.
Back in May, Westpac revealed its latest interim results. These included an earnings per share (EPS) metric of $1.02 and an interim dividend of 77 cents per share. That works out to be an earnings payout ratio of 75.5%. Pretty healthy for a bank.
Previously, in November last year, Westpac reported a full-year EPS of $2.04 for FY 2025, with annual dividends worth $1.53. That's a payout ratio of 75%.
In the quarterly report released today, Westpac revealed a net profit (excluding notable items) of $1.8 billion for its third quarter. That was up 2% on the prior quarter's average. It also had a statutory net profit of $1.8 billion to show off, up 3% on the prior quarter's average.
So despite the drop-off in mortgage applications, Westpac's finances do seem sound, at least for now. Combining that with its plenty-of-room-to-spare payout ratios, I would conclude that Westpac's dividends appear to remain on relatively safe ground. No dividends are ever truly safe on the ASX, of course. But if I owned Westpac shares for income, I wouldn't be panicking.
At today's pricing, this ASX 200 bank stock is trading on a dividend yield of 4.26%.
