Is the Westpac Banking Corp (ASX: WBC) share price a buy for the grossed-up dividend yield of 9.5%?
The yield has been given a quick boost with the Westpac share price down by 2.7% in early trading in reaction to weak US economic numbers and the fact that the US is going to put tariffs on EU aircraft & agriculture goods.
Australia is a country which is quite exposed to the global economy, so any wobbles certainly are felt here too, both in the short-term with share prices and the longer-term with our economy.
With share prices being so volatile, investors may be hoping that it's the returns from dividends that can provide decent returns.
Westpac certainly has a big dividend yield. But there's concern that there may be a cut coming, like we saw from National Australia Bank Ltd (ASX: NAB) a few months ago. The Westpac dividend may simply be too big for the earnings to cover whilst also improving its capital position.
Another reason why Westpac may be forced to cut its dividend is if there's any more expensive royal commission remediation charges to recognise. NAB just unveiled a monster charge that will be recognised in the second half of its FY19 result.
We're now close to the APRA date where the regulator wants banks to be 'unquestionably strong', so Westpac may need to lower the dividend to reach the target.
Westpac may be an option for consider for retirees looking for a big source of dividends – the yield is likely to be high even if the dividend were to be cut by say 10%.
Foolish takeaway
With share markets currently going through turbulent times, I think there could be better opportunities around even if Westpac looks cheap trading at under 13x FY20's estimated earnings.
