Westpac Banking Corp (ASX: WBC) shares are having a decent session on Thursday.
In afternoon trade, the banking giant's shares are up 1.5% to $21.46.
Despite this, the shares of Australia's oldest bank are still down a sizeable 12% from their 52-week high.
While this is disappointing, it could be good news for income investors. That's because the potential dividend yield on offer with Westpac's shares is now much greater than it was if you were buying them late last year.
Image source: Getty Images
Should you buy Westpac shares for dividends?
The team at Morgans believes that Westpac shares would be a great option for income investors.
In response to the bank's third-quarter update, the broker has retained its add rating with a $23.02 price target. This implies a potential upside of over 7% from current levels.
As for income, the broker is forecasting fully franked dividends of $1.46 in FY 2023 and then $1.47 in FY 2024. Based on the current Westpac share price, this suggests very generous dividend yields of 6.8% and 6.85%, respectively.
This boosts the total potential return to approximately 14% for investors over the next 12 months.
What did the broker say?
While the broker wasn't overly impressed with Westpac's update, the bank's attractive valuation and dividend yield are enough for its analysts to remain positive. It explains:
Westpac Banking Corp published its Q3 trading update and regulatory capital disclosures. We have made material downgrades to our forecasts and reduced our target price to $21.00, mainly because of the unexpectedly high cost growth. The share price performance is disappointing for existing WBC investors. However, for a new investor we think the current price offers potential returns of c.19% [14% now] (including c.7% cash yield) even after allowing for the reduced target price.
