Does the Westpac share price fall make it a no-brainer buy?

The Westpac Banking Corp (ASX: WBC) share price is on course to end the week on a mildly positive note.

At the time of writing, the banking giant’s shares are up 0.25% to $21.75.

However, despite this, the Westpac share price remains down almost 7% since the start of the year.

Investors may now be wondering if this is a buying opportunity. Here are three reasons I think buying Westpac shares is a no-brainer.

Strong capital position

A lot of the weakness in the Westpac share price this year has been driven by the banking crisis.

While seeing banks go out of business is always unnerving, it is worth noting that Westpac and the rest of the big four are among the most liquid in the world.

As I mentioned here last week, Westpac has a CET1 ratio of 11.13%, a net stable funding ratio (NSFR) of 139%, and a liquidity coverage ratio (LCR) of 122%. These are all comfortably ahead of requirements.

I believe this makes the recent pullback an overreaction and an opportunity for investors to pick up shares at a discount.

Cost cutting

Another reason I am bullish on the Westpac share price is its cost-cutting plans.

Australia’s oldest bank is aiming to reduce its cost base to $8.6 billion by FY 2024. This compares to its ‘ongoing’ cost base of $9.1 billion in FY 2021.

This is particularly positive in the current inflationary environment, which has seen many other companies (including other big four banks) reporting sizeable increases in their costs.

For example, last month, Commonwealth Bank of Australia (ASX: CBA) reported a 5% or $283 million increase in its first-half operating costs to $5.77 billion.

Together with the benefits of rising interest rates, Westpac’s lower cost base should be a boost to its bottom line and, ultimately, its dividends. Speaking of which, this leads us to the third reason to be bullish.

The Westpac dividend yield

One positive from falling share prices is that the potential dividend yields on offer become more attractive.

For example, Goldman Sachs expects Westpac’s earnings growth to underpin fully franked dividends per share of $1.47 in FY 2023, $1.56 in FY 2024, and then $1.65 in FY 2025.

Based on the latest Westpac share price, this will mean monster yields of 6.75%, 7.2%, and 7.6%, respectively.

And with Goldman having a conviction buy rating and a $27.74 price target on its shares, there’s also potential for some big capital gains as well.

The post Does the Westpac share price fall make it a no-brainer buy? 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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