Can Westpac shares really deliver 15% upside AND a 6% dividend yield?

This could be the bank share to buy for big returns according to Goldman Sachs.

| More on:
Young investor sits at desk looking happy after discovering Westpac's dividend reinvestment plan

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Westpac shares could have double-digit upside according to Goldman Sachs
  • The broker also expects a generous dividend yield from its shares
  • Goldman has Westpac on its coveted conviction list

If you're looking for exposure to the banking sector, then Westpac Banking Corp (ASX: WBC) shares could be worth considering.

That's the view of analysts at Goldman Sachs, which believe the banking giant's shares could provide investors with strong gains and big dividends.

What's on offer with Westpac shares?

According to a note released this morning, the broker believes that Westpac shares are trading at a level that makes them very cheap.

In fact, its analysts estimate that "the stock is trading at a 24% 12-month forward PER discount to peers (historically a 3% discount)."

As a result, it sees scope for a significant re-rating from current levels and has retained its conviction buy rating on its shares with a slightly trimmed price target of $25.86.

Based on the current Westpac share price of $22.57, this implies potential upside of 15% for investors over the next 12 months.

But wait, there's more!

Don't forget the dividends

Goldman is also expecting the bank's full-year dividends to increase from $1.25 per share in FY 2022 to $1.44 per share in FY 2023 (and then to $1.50 per share in FY 2024).

This equates to a fully franked 6.4% dividend yield this year based on where Westpac shares are currently trading.

Goldman commented:

We reiterate our Buy recommendation (on CL) on WBC given: i) while NIM pressures are accelerating across the sector, WBC's shorter-duration replicating portfolio, and current balance sheet performance, should see its NIM outperform peers; ii) despite WBC recently revising its FY24E cost target to A$8.6 bn (from A$8.0 bn), the bank's performance on cost management remains strong in this inflationary environment, and we forecast a 9% step down in underlying costs over the next two years; iii) on our estimates, the stock is trading at a 24% 12-month forward PER discount to peers (historically a 3% discount), and iv) our TP of A$25.86 offers 23% TSR.

Motley Fool contributor James Mickleboro has positions in Westpac Banking. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »

Bank building with the word bank on it.
Bank Shares

The biggest buyers and sellers of ASX 200 bank stocks revealed

Macquarie breaks down who’s been buying and who’s been selling the ASX 200 bank stocks.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »