Is the Westpac Banking Corp (ASX: WBC) share price a buy for its 9.3% dividend yield?
You may remember that Westpac recently cut its final dividend to $0.80 per share in its FY19 result. If we assume that the next dividend payment is $0.80 that amounts to a full year dividend of $1.60 per share, the same as Australia and New Zealand Banking Group's (ASX: ANZ) dividend.
Even though the Westpac dividend was cut by a mid-teen percentage, it has suffered a share price fall of 9.5% over the past month which has nullified a lot of the fall for any potential investors.
The AUSTRAC scandal has really hurt investor confidence of the big four ASX bank. It faces a fine of at least $700 million which was the same amount as the Commonwealth Bank of Australia (ASX: CBA) fine a couple of years ago. It's likely to be materially bigger than that because of the alleged child exploitation payments involved.
Westpac has seen a number of its leadership positions change because of the fallout. The CEO Brian Hartzer has lost his job and the Chairman has decided to bring forward his retirement.
But some investors like WAM Leaders Ltd (ASX: WLE) are now saying the beaten-down share price of Westpac could actually be an opportunity.
Except for the fine, Westpac probably has a reasonably similar outlook along with the other banks, so maybe this price could be a cheap opportunity compared to the other banks on the ASX.
The APRA boss warned this week that banks may need to reduce their dividend payments further if they want to re-invest back into their businesses. It might come down to a choice of growth or large dividend payments for shareholders. Canadian banks could be a good model – their yields are lower but the dividends can grow year after year because they keep investing for growth.
Foolish takeaway
Westpac may indeed be an opportunity, but it's not the type of calculated risk I'd want to make, even with the dividend yield. I think there are better ideas out there that don't face such large short-term problems and long-term structural competition.
