Attention Westpac Banking Corp (ASX: WBC) shareholders, look away now!
Down 7.5% so far this week, Westpac shares are now just 2.5% higher than they were at the beginning of the year and have underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by 2.8%.
But if you thought this could be a great buying opportunity, think again.
After reporting flat profits year-over-year and failing to meet analysts' expectations on dividends, it's little wonder investors have sold down the stock.
Sure, investors on Westpac's share registry at 15 May 2015 can expect a dividend equivalent to 2.73% of its current price (to be paid into their bank accounts on 2 July 2015), but the bank also announced its intention to issue $2 billion worth of new shares under the dividend reinvestment plan to bolster its capital position. That's an additional 1.8% more shares on the market!
That's akin to taking money from your left pocket and putting in your right pocket…
However perhaps it was Westpac's outlook which was most concerning.
In the face of an uneven economy and falling profit margins Westpac CEO Brian Hartzer said "banking competition will remain intense, including from new entrants."
With a tougher economic outlook, falling profitability, an uncertain regulatory environment (which will likely require banks to hold more capital in reserve) and expensive shares it's safe to say I'll be avoiding Westpac shares for the foreseeable future. I suggest you do the same.
