Is the grossed-up dividend yield of Westpac Banking Corp (ASX: WBC) too good to ignore?
With that dividend yield being 9.4%, it is certainly the highest out of the big four ASX banks, it certainly looks comparatively attractive even after a strong run up in share price over the past three months.
The Commonwealth Bank of Australia (ASX: CBA) grossed-up dividend yield is 7.4%, the National Australia Bank Ltd (ASX: NAB) grossed-up dividend yield is 8.3% and the Australia and New Zealand Banking Group (ASX: ANZ) grossed-up dividend yield is 8.2%. Westpac's is better by over 1%.
If they all maintain their dividends over the next few years, which there's no guarantee they will, then Westpac would obviously give the highest dividend return. High dividends are attractive in this low interest rate environment.
Unlike NAB which did recently cut its dividend, Westpac maintained its dividend and if it can get through this period of royal commission remediation without a cut then it may be able to keep sustainably maintaining it whilst meeting the various capital ratios required of it.
With the RBA, APRA and the government wanting to keep the economy on track, banks could be a better pick than before the federal election and policy shifts.
But for me, I'm not just after a large starting yield. I'd want to see that growth of the dividend is possible as well, which is obviously linked to the earnings.
Can Westpac keep growing its earnings? Credit growth is very low, house prices are uncertain and competition is high. Prospective borrowers can use the internet or brokers to compare a wide array of potential loans, which creates a slow-motion race to the bottom, which is partly why the big bank net interest margins (NIM) have been falling, Westpac's NIM dropped to 2.12% in the recent half year result.
Foolish takeaway
Westpac is trading at less than 13x FY20's estimated earnings, which looks cheap compared to the market, but I think its growth prospects look uncertain at the moment, it's not for my portfolio.
