Westpac shares are ‘attractive for income-oriented investors’: analyst

If you’re looking for exposure to the banking sector, then Westpac Banking Corp (ASX: WBC) shares could be the way to do it.

That’s the view of analysts at Morgans, which have named the banking giant on its best ideas list for February.

Morgans’ best ideas are those that it believes offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence.

Why Westpac shares?

Morgans is positive on Westpac due to its belief that Australia’s oldest bank has the potential to deliver big return on equity improvements. It also highlights its attractive fully franked dividends. The broker explained:

We view WBC as having the greatest potential for return on equity improvement amongst the major banks if its business transformation initiatives prove successful. The sources of this improvement include improved loan origination and processing capability, cost reductions (including from divestments and cost-out), rapid leverage to higher rates environment, and reduced regulatory credit risk intensity of non-home loan book. Yield including franking is attractive for income-oriented investors, while the ROE improvement should deliver share price growth.

Morgans currently has an add rating and $25.80 price target on Westpac’s shares. Which, based on its current share price, implies a potential return of 9.5% for investors over the next 12 months.

But of course, the returns don’t stop there. Westpac is a big favourite of income investors because it tends to provide a generous dividend yield.

Pleasingly, FY 2023 will be no exception according to Morgans. Its analysts are forecasting a $1.53 per share fully franked dividend this financial year. This equates to a pretty tasty 6.5% dividend yield at current levels.

Combined, this suggests that Westpac’s shares could provide investors with a total return of 16% between now and this time next year.

The post Westpac shares are ‘attractive for income-oriented investors’: analyst appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Westpac Banking. 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 recommended Westpac Banking. 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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