As the ASX market took a sharp turn for the worse last week, Westpac Banking Corp (ASX: WBC) shares went along for the ride.
Shares in the ASX banking major had just nudged a 52-week high of $29.80 on 31 July before sliding to close Tuesday's session at $27.82, down 6.5% from its previous highs.
As one of Australia's largest banks, Westpac is a popular choice for Aussie investors. But the recent volatility raises the question: Is now the right time to buy Westpac shares?
Let's see what the experts think.
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The dividend factor
Westpac shares are a staple for income investors, largely due to their fully franked dividends. Over the past year, Westpac paid out dividends of $1.62 per share.
Based on the current share price, this equates to a yield of 5.1% — more than most high-yield savings accounts.
Looking ahead, Goldman Sachs analysts forecast a fully franked final dividend of 75 cents per share to be declared in November. The payment should arrive just in time for a nice Christmas present.
For FY25, Goldman expects the dividend to be $1.50 per share.
With the recent pullback in share price this has widened up the dividend yield somewhat. Prices and yields move inversely, such that a decrease in the value of a stock corresponds to an increase in the dividend yield.
For instance, a stock valued at $50 with a dividend of $5 per share has a dividend yield of 10% (5/50 = 10%). But if the price drops to, say, $45 apiece, the dividend yield is now 11% (5/45 = 11%).
Prior to Westpac's selloff, the FY25 estimated dividend yield was 5%, and it has lifted to 5.4% at the time of writing.
This recent Westpac share price weakness might, therefore, be seen as a positive for income investors.
Is It a good time to buy Westpac shares?
Despite the attractive dividend yield, major brokers are cautious about Westpac's prospects. And even though it sees strong dividends, Goldman Sachs has a sell rating on Westpac shares.
Its price target is $24.10 per share, implying further downside to come.
The broker's concerns include the risks associated with Westpac's technology transformation and its heavy reliance on the Australian housing market.
WBC is the most exposed to Australian housing, and we believe the relative outlook for system housing lending is likely to be constrained by an already full indebted household…
Similarly, Citi and UBS also have sell ratings on Westpac shares, with price targets of $24.75 and $25.00, respectively.
The consensus of analyst ratings also recommends Westpac shares as a sell, according to CommSec. With sentiment this low, it's unclear what this means for the stock moving forward.
Foolish takeouts
Westpac shares are in an interesting position. While income investors might find the dividends appealing, those seeking growth may want to explore other options, experts say.
As always, remember to conduct your own due diligence and consider your investment goals before making any stock purchase.
