I think it's fairly safe to say that Westpac Banking Corp (ASX: WBC) has had a horror 2019. It was supposed to be a year of contrition and reflection after the damning revelations that stemmed from the 2018 Banking Royal Commission. Alas, Westpac has instead found itself under siege as we close out the year.
Revelations that Australia's oldest bank is alleged to have facilitated widespread use of its systems by criminal enterprises has sent the Westpac share price to its lowest levels in five years. An unfortunately timed capital raising program as well as hefty cuts to its dividend payments this year haven't exactly helped.
But perhaps Westpac's current share price is starting to look tempting from a value perspective. Income investors would no doubt note that the falling WBC share price has resulted in a starting yield of 6.6% (9.4% grossed-up with franking) being offered today on current prices.
That's a market-leading dividend yield and amongst the highest being offered from the ASX banking sector today. For some comparison, Commonwealth Bank of Australia (ASX: CBA) shares will 'only' net you a yield of 5.35% on current prices (7.64% grossed-up).
Is Westpac a buy for ASX dividend income?
Westpac shares are being put in the garbage bin for a reason, in my opinion. The company is waiting to be hit with a fine for the earlier-discussed criminal activity alleged to have occurred on its watch. Many commentators are expecting that this fine will be the largest in Australian corporate history – and might even top $1 billion. That's a billion dollars that shareholders will have to forgo in the near future.
The capital raising program will also lead to share dilution (with the new shares being issued). That's another blow to existing shareholders and also helps explain Westpac's current share price.
Further, Westpac's most recent earnings per share data (for the trailing twelve months to September 30, 2019) indicates that even with the company's dividend cuts, Westpac is still paying out over 80% of its earnings as dividends. There's certainly not much wiggle-room there and if things don't improve in the banking sector soon, another dividend cut may be on the horizon in 2020.
Foolish Takeaway
From where I'm standing, there's a lot of risk for any investor buying Westpac shares for dividend income today. Even after this year's payout cuts, I don't regard this dividend as 'safe' going into the next decade. But if you have a long investing horizon, a crazy-brave investor might just find some value in WBC shares today.
