Is the Westpac share price a buy for its 6% dividend yield?

The Westpac Banking Corp (ASX: WBC) share price is typically low enough to offer investors an attractive dividend yield. The ASX bank share is among the most popular picks for passive income because of its large market capitalisation and perceived stability.

As one of the largest ASX bank shares in Australia, Westpac typically offers a higher yield than Commonwealth Bank of Australia (ASX: CBA) and Macquarie Group Ltd (ASX: MQG) because it usually trades on a lower price-to-earnings (P/E) ratio.

But Westpac usually has a dividend yield similar to that of National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ), as they have similar earnings multiples and dividend payout ratios.

Let’s take a look at how appealing the Westpac share price could be for passive income.

Dividend projection for the ASX bank share

According to the forecast on Commsec, Westpac could pay an annual dividend per share of $1.54 in the 2026 financial year. That would be a grossed-up dividend yield of 6.1%, including franking credits, at the time of writing.

We’re already more than halfway through FY26, so it’s worthwhile looking at what the payout could be in the next financial year – FY27.

The projection on Commsec suggests the business could hike its annual dividend per share to $1.55 in the 2027 financial year. That translates into a potential forward grossed-up dividend yield of 6.2%, including franking credits.

While those aren’t the biggest yields on the ASX, the potential passive income is very competitive against the best term deposits right now.

We should also remember that term deposit income is limited to the advertised interest rate. On the other hand, businesses with good prospects can grow their profits and dividends over time.

For me, the dividend income prospects are solid, but I wouldn’t say it’s impressive enough – large or growing quickly – to justify buying at the current Westpac share price just for dividends.

Is the Westpac share price a buy?

The Westpac share price has fallen 16% since April, with headwinds from the Federal budget likely weighing on investor confidence. Is the ASX bank share attractive when negative gearing and capital gains tax (CGT) changes are seemingly hurting property buyer (and borrower) demand?

But, in my view, it’s better to buy when the price is lower rather than higher. It’s possible that owner-occupier demand could offset lower investor demand in the medium term.

According to CMC Invest, there have been nine ratings on the ASX bank share in the last three months. Six of those were sell ratings and three were hold ratings.

Of those nine ratings, the average Westpac share price target is $33.63. That implies a possible 6% decline over the next year, so analysts think the business is overvalued.

Therefore, it doesn’t seem like it’s great to invest in the bank today, while other ASX share opportunities look more appealing.

The post Is the Westpac share price a buy for its 6% dividend yield? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.