Why is the Westpac share price sinking today?

A puzzled female investor shrugging with credit card and phone.

A puzzled female investor shrugging with credit card and phone.

The Westpac Banking Corp (ASX: WBC) share price is taking another tumble on Thursday morning.

At the time of writing, the banking giant’s shares are down 3.5% to $20.92.

This means the Westpac share price is now down 7% since the start of the month.

However, this decline is a bit different to the others. This decline is, in many respects, actually something positive for shareholders.

Why is the Westpac share price falling?

The weakness in the Westpac share price on Thursday is due to the bank’s shares going ex-dividend for its upcoming dividend payment.

Earlier this week, Australia’s oldest bank released its half-year results and reported a 22% increase in profit to $4 billion. This was underpinned by a combination of solid net interest income growth and lower expenses.

In response to this profit growth, the Westpac board elected to declare a 70 cents per share fully franked interim dividend. This was a sizeable 15% increase year over year, much to the delight of shareholders.

Well, at yesterday’s market close the rights to that dividend payment were locked in. This means that anyone buying Westpac shares today won’t be entitled to receive this payout. The rights will instead stay with the seller.

And given how the cash funding the dividend is part of the valuation of a company, a company’s share price will usually drop in line with the payout to reflect this. After all, new buyers don’t want to pay for something that they won’t receive.

What’s next?

Firstly, eligible shareholders can look forward to receiving this fully franked 70 cents per share dividend towards the end of next month on 27 June.

After which, if Goldman Sachs is on the money with its estimates, they can also look forward to another fully franked 70 cents per share dividend with its full-year results later this year.

This will mean a full-year dividend of $1.40 per share, which based on the Westpac share price at yesterday’s close, equates to a generous fully franked 6.45% yield.

The post Why is the Westpac share price sinking today? appeared first on The Motley Fool Australia.

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