Here’s my take on Westpac’s big dividend yield.
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As many ASX investors would be aware by now, it wasn’t a great month for Westpac Banking Corp (ASX: WBC) shares and the other ASX bank stocks last month.
Sure, bank shares like Westpac passed the first hurdle when Commonwealth Bank of Australia (ASX: CBA) kicked off earnings season with a decent report card. However, investors couldn’t keep up the momentum when they got a look at the quarterly numbers from both Westpac and National Australia Bank Ltd (ASX: NAB).
Ever since Westpac’s report was dropped on 17 February, the ASX bank shares have conspicuously come off the boil. NAB’s own report two days later did nothing to stop the slide.
In Westpac shares’ case, we have seen this bank drop more than 8.5% since the middle of last month. Yep, just over two weeks ago, Westpac was asking over $35 a share. Today, those same shares are worth just $31.80 at the time of writing.
Whilst this would be a painful capital loss for many investors, keep in mind that Westpac shares remain up a healthy 19.2% or so over the past 12 months.
But this recent correction for Westpac shares comes with a bit of an upside for income investors – we have seen a small uptick in the dividend yield available on Westpac shares.
Remember, an ASX share’s dividend yield has an inverse relationship with its share price. If the shares go up in value, the dividend yield falls. But the opposite is also true. If one were to buy Westpac shares back in mid-February, one would have done so on a trailing dividend yield of 4.31%.
However, after the dramatic falls we’ve seen ever since, today, Westpac shares are trading on a much-improved yield of 4.75%.
What a difference two weeks can make.
Does this higher dividend yield make Westpac shares a buy?
Obviously, most investors would prefer a higher dividend yield to a lower one. However, looking at the history of the Westpac share price, it is pretty clear that dividends form the lion’s share of what this bank can really offer investors. After all, Westpac shares are sitting at the same price today as they were way back in April 2013. And not too far from this bank’s pre-global financial crisis peak in 2007.
As such, I think most ASX investors who don’t solely invest for dividend income would be better off looking elsewhere for a market-beating investment. Saying that, I would still recommend Westpac shares to any investors who invest solely for dividend income – retirees and the like.
Whilst Westpac may not have a stellar long-term share price track record, it does have a lot to be proud of when it comes to dividends. Westpac has been a steady and reliable dividend payer for decades. Sure, its sentiments tend to take a hit during recessions and other economic shocks. But they have always bounded back with a vengeance.
Past performance is never a guarantee of future success, of course. But runs on the board are runs on the board.
For an income investor today, I think Westpac’s 4.76% dividend yield, which comes with full franking credits attached, mind you, would serve an already-diversified income portfolio well.
Motley Fool contributor Sebastian Bowen has positions in National Australia Bank. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.