Is the Westpac Banking Corp (ASX: WBC) share price a buy for a dividend yield that could be 6.3%, grossed-up, in FY21?
What is the projected 6.3% dividend yield based on?
We'll get to broker thoughts later, but the headline yield comes from a prediction based on Commsec numbers that Westpac will pay a fully franked dividend of $1.09 per share in FY21. This would be a sizeable increase from the dividend paid in FY20 of just $0.31 per share.
What's driving the Westpac share price right now?
A month ago the big four ASX bank announced that its FY21 first quarter statutory net profit was $1.7 billion, up from the quarterly average of the second half of FY20 of $550 million.
It also said that FY21 first quarter cash earnings of $1.97 billion was much higher than the FY20 second half quarterly average of $808 million, up 54% excluding notable items.
Westpac said that it was boosted by a $501 million impairment benefit from improved credit quality, the stronger economic outcomes that the bank is seeing and a better economic outlook.
The Westpac share price is up around 10% since the release of this update.
The big bank said that its stressed assets and delinquencies declined. Stressed assets to the bank's total committed exposure fell 15 basis points, with almost all industry segments improving. Consumer delinquencies of over 90 days were lower over the quarter, which included Australian mortgage delinquencies of over 90 days down 16 basis points to 146 basis points.
It reported a net interest margin (NIM) of 2.06%, up 3 basis points from the second half of FY20. This was up 2 basis points excluding notable items.
The big four ASX bank said that core earnings were up 28%, or up 3% excluding notable items.
In terms of the balance sheet, Westpac said that its common equity tier 1 capital ratio was 11.9% at 31 December 2020, up 74 basis points over the quarter and up 111 basis points year on year. This is above APRA's 'unquestionably strong' benchmark.
At the time of the update, Westpac said that the number of COVID-19 deferrals was continuing to decline. At 31 January 2021, $11 billion Australian mortgages were being deferred, with significant roll-off expected in February and March. The big bank also said that $400 million of small business loans were being deferred at 31 January 2021, which represented less than 1% of the small business portfolio.
Is the Westpac share price a buy?
Broker Morgans has a share price target of $27.50 for Westpac and actually thinks that the big four bank could pay a dividend of $1.32 per share in FY21. That translates to a grossed-up dividend yield of 7.6% at today's share price. Morgans rates Westpac shares as a buy.
However, not every broker is so bullish about the bank.
Whilst Ord Minnett thinks that Westpac could pay a dividend of $1.20 per share in FY21, it only has a share price target of $24.50 for the big four ASX bank. Ord Minnett thinks that the Westpac share price is a hold.
