Is the Westpac Banking Corp (ASX: WBC) share price a buy for future dividends at the current price?
It seems pretty clear that Westpac is in for a rough time in 2020 with a hefty AUSTRAC penalty coming and all of the coronavirus pain.
The Westpac board wisely decided to defer the interim dividend decision. We don’t know how much pain there’s going to be for banks yet. It could be really painful, or perhaps there will just be some pain but not too much – which is what the banks have already provisioned. Investors just can’t know at this stage.
In the FY20 half-year result Westpac announced an impairment charge of $2.24 billion, which was up $1.9 billion to take into account the potential impacts of the coronavirus.
That Westpac interim report was hard to read for shareholders. There’s a reason the Westpac share price has fallen so much. Cash earnings were down 70% to $993 million and statutory profit was down 62% to $1.2 billion.
Is the Westpac share price a buy for income?
Clearly there’s no dividend at the moment with it being deferred. However, what about when we get through this stage of the coronavirus? Will the Westpac share price be worth buying then?
If Westpac were to go back to paying $0.80 per share every six months in the future then Westpac would have a grossed-up dividend yield of 15%. But even if you were to assume some positive assumptions, how long would that take? Two years, three?
Not only don’t we know how long the economy will take to get back to normal, we don’t even know if the bank boards will go back to those same dividend payout ratios. Westpac could decide to only pay out half of earnings or even just a third going forwards.
Historically, lot of retirees probably paid less attention to the Westpac share price and more to the dividend. I wouldn’t buy Westpac expecting big dividends in the future, it could easily change to a North American bank level of dividends permanently.
The Westpac share price is a lot lower, but it’s only a buy if the economy can rebound quickly. There may be a lot more pain to come, I’m not looking to buy today. I think there are better dividend shares out there.
This top ASX dividend share could be a much better pick for reliability and long-term income.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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