Is the ASX banking dividend yield for Westpac of nearly 10% too good to be true?

Is the Westpac Banking Corp (ASX:WBC) dividend yield of almost 10% too good to be missed?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the dividend yield of Westpac Banking Corp (ASX: WBC) too good to be true? Grossed-up, it's almost 10%.

When you compare that to other ASX bank dividend yields it certainly looks more attractive. The Commonwealth Bank of Australia (ASX: CBA) grossed-up dividend yield is 7.6%, Australia and New Zealand Banking Group's (ASX: ANZ) is 8.4% and National Australia Bank Ltd's (ASX: NAB) is likely 8.8%.

To have around 1% of an additional yield on your peers can make a big difference for shareholders. On a $100,000 holding it adds an additional $1,000 of income.

However, I do wonder whether Westpac's dividend will follow the same pattern as NAB's.

Both Westpac and NAB maintained their dividend for a few years, but we have seen NAB had to reduce the dividend to a more sustainable level.

In Westpac's recent half year result it generated 95.8 cents of earnings per share (EPS), meaning the dividend payout of $0.94 represented a payout ratio of 98% – only just 'sustainable'. When you exclude the remediation and restructuring costs Westpac generated EPS of $1.176, an underlying dividend payout ratio of 80%.

The big question is whether Westpac's reported EPS can grow enough to sustain the current dividend as well as increasing the level of capital it holds, which is being asked of it in both Australia and New Zealand. Westpac had a CET1 ratio of 10.64% at March 2019, so it is quite well capitalised to meet these additional requirements.

Everyone seems to be predicting that Australian house prices are done falling, but I wouldn't want to make that call until at least the end of Spring. This time of year always has low listing volumes, and historically has been the better time of year for house prices.

Foolish takeaway

Westpac's dividend may well be sustainable at this level, but I wouldn't want to make that bet. Particularly with mortgage arrears trending upwards.

Should you invest $1,000 in Australian Ethical Investment right now?

Before you buy Australian Ethical Investment shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Australian Ethical Investment wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

CBA shares hit a new $176 record high. Too late to buy?

What can stop this bank now?

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Is this the right time to invest in Westpac shares after the interest rate cut?

Should investors bank on rate cuts helping Westpac?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Bank Shares

How did ASX bank shares react to the RBA decision?

The Reserve Bank of Australia just reduced interest rates by 0.25% in the second cut for 2025.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Dividends from ASX 200 bank shares 'looking very stretched': expert

The banks have always been a favourite choice among ASX dividend investors. But the outlook ain't great.

Read more »

A pink piggybank sits in a pile of autumn leaves.
Bank Shares

How much higher can the CBA share price rise?

One fund manager has given their view on the biggest bank.

Read more »

A young man goes over his finances and investment portfolio at home.
Bank Shares

Why is the Macquarie share price sinking today?

Let's see what is causing its shares to start the week in the red.

Read more »

Woman with spyglass looking toward ocean at sunset.
Bank Shares

Here's the earnings forecast out to 2029 for NAB shares

Let’s look at what experts are predicting for the bank.

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

Here's what Westpac says the RBA will do with interest rates next week

The RBA is meeting on Tuesday. Will it cut rates? Let's find out.

Read more »