Westpac stock: Should you buy the 5.5% yield?

Is Westpac an easy buy today for that 5.5% yield?

| More on:
A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

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

It's been a long-established practice on the ASX to own at least one bank stock if at least one of your investing goals is maximising franked dividend income. The ASX bank stocks, particularly, the big four banks like Westpac Banking Corp (ASX: WBC), have been paying fat and mostly fully franked dividends to their shareholders for decades.

These banks remain amongst the top 'go-to' shares for anyone seeking large upfront yields.

One might just glance at the current Westpac stock price today and conclude that this reputation is vindicated. After all, not too many blue chip shares on the ASX 200 currently offer a fully-franked dividend yield of 5.53%.

But is Westpac stock a buy for this seemingly lucrative dividend potential right now?

Is Westpac stock a buy today?

Well, firstly, this fat dividend yield from Westpac shares is no joke. It comes from the bank's last two dividend payments to shareholders. The first was the interim dividend of 70 cents per share from June last year. The second was the 72 cents per share payment that was sent out in December. Both payments naturally came with full franking credits attached.

But of course, a company's past dividends theoretically have no influence over any future payments. Westpac is under no obligation to fund 2024's dividends at 2023's levels. Or indeed pay any dividends at all.

However, Westpac stock does have a pretty strong track record of delivering in this department. 2023's annual dividend total of $1.42 per share was a healthy increase over 2022's total of $1.22 per share. That in turn was a healthy rise over 2021's $1.18 per share.

Given Westpac's status as a mature, financially sound business and an entrenched member of the big four banks, I don't expect any major threats to its business model and earnings base in the years ahead. Outside the normal cyclicalities of the banking sector anyway.

That should mean Westpac will be able to fund franked dividends at least near 2023's levels in 2024 and beyond.

This, in my view, makes Westpac a compelling stock to buy today for any investor looking to maximise dividend income from their ASX shares. For retirees, pensioners and anyone else who might rely on dividend income to pay bills, I would happily recommend Westpac as part of a diversified income-focused share portfolio today.

A caveat on this ASX 200 bank

However, I would not recommend Westpac shares to any investor who is looking to grow their wealth at the fastest rate possible and is indifferent to dividend income. Westpac is not a growth stock, and I don't expect this company to achieve meaningful share price gains in the years ahead. Given how saturated and mature the Australian banking market is, there aren't going to be a lot of growth opportunities for the company going forward.

Indeed, looking at the Westpac stock price today, we can see that it is currently at the same levels it was way back in April 2007. I don't think this reality is going to shift in the years ahead.

As such, I don't think Westpac stock has what it takes to be a market-beating investment going forward. It's a great company to hold for those fat, fully-franked dividends. But not for much else in my view.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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 »