Westpac Banking Corp (ASX: WBC) shares currently boast an enormous dividend yield of 6.2% – fully franked no less!
Grossed-up for those tax-effective franking credits, Westpac's dividend yield blows out to an incredible 8.8%.
By comparison, annual term deposits up to $250,000 at Westpac yield just 2.45%.
So with a forecast dividend yield roughly 3.5 times the expected return of term deposits, you might expect to see investors falling over themselves to buy shares in Australia's second largest bank. However, that's not what is happening.
In fact, Westpac shares are down more than 4% in the past month alone. In my opinion, it appears as though the market thinks the risk-reward trade-off for Westpac shares isn't worth its time.
1 blue chip stock I'd buy before Westpac
Indeed, there are bucket loads of companies listed on the ASX that I'd consider 'blue chip', and some of them I'd consider superior investments to Westpac at today's prices.
For example, earlier this month, I loaded up on more shares of ResMed Inc. (CHESS) (ASX: RMD).
ResMed is dually listed on the New York Stock Exchange and the ASX.
It is the global leader in the manufacture of devices for sufferers of sleep apnoea and related respiratory disorders.
While its forecast dividend yield of just 2.03% is far less spectacular when it's placed side-by-side to Westpac's 8.8%, the $10 billion company's total shareholder return (dividends plus capital gains) trumps that of Westpac shares.
Indeed, over the past 10 years, ResMed has achieved a compound annual total shareholder return of 11.6%, compared to Westpac's 9.9%, according to Morningstar.
Moreover, as the local economy slows, Westpac is likely to continue underperforming ResMed in my opinion. That's because ResMed will capitalise from ongoing increases in global healthcare spending, aging populations and a stronger global economy.
Buy, Hold or Sell?
Despite its huge dividend yield, I'd rate Westpac shares as a 'hold' — at best. Conversely, despite their low yield, ResMed shares appear far better long-term value at today's prices.
