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?
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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.
