Is Westpac (ASX: WBC) share price a buy for its 7% dividend yield?


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the Westpac banking company (ASX: WBC) is the stock price a buy for its expected gross dividend yield in FY22?

Banks have long been scrutinized for their dividends due to the tendency to have a reasonably high dividend payout ratio and a fairly low price-to-earnings ratio. This combines into an above average dividend yield.

Each analyst has different expectations of what the bank is going to do in FY22.

When looking at the projection on Commsec, the numbers suggest that Westpac will pay a dividend of $ 1.25 per share. This translates into an increased dividend yield of almost 7%.

Commsec’s forecast also suggests that the Westpac share price is valued at less than 14 times the estimated FY22 earnings.

How has Westpac behaved recently?

In terms of the actual performance of the company, it is experiencing a recovery.

Third quarter

In the third quarter FY21 quarterly update, it said its Tier 1 (CET1) capital ratio was 12%. Risk-weighted assets increased $ 8.5 billion, or 2%, in the third quarter, mostly higher credit RWAs. Its Australian mortgages and Australian business loans have grown in step with the overall lending system.

Westpac said that due to excess capital and postage credits, the board would consider a return of capital, with an update expected in its FY21 results.

On the loan portfolio, mortgage delinquencies of 90 days and over were 1.11% in Australia (down 9 basis points) and 0.37% in New Zealand (up 4 points). basic).

Margins for the second half of FY21 are expected to be lower than for the first half of FY21. Expenses for fiscal year 21 are expected to be higher than those for fiscal year 20, excluding notable items.

The profits and operating performance of the bank may have an impact on the Westpac share price.

Half-year result FY21

Going back to the half year FY21 results, cash gains of $ 3.54 billion were up 119% from the second half of FY20. Excluding ‘notable items’, cash earnings rose 35% to $ 3.8 billion. The net interest margin (NIM) increased 6 basis points to 2.09%. Statutory net profit rose 213% to $ 3.44 billion.

A key announcement from Westpac is that it has a three-year cost plan to reduce the cost base by $ 8 billion by FY24.

The bank is also working on an integrated financial and non-financial risk management plan. It has increased its resources in the risk and financial crime teams.

Westpac is also selling a number of its secondary businesses to simplify the overall structure and improve the balance sheet.

Is the Westpac share price a buy?

Commsec does not offer buy (or sell) ratings, but brokers do.

Let’s look at some of them.

Macquarie Group Ltd. (ASX: MQG) has a neutral rating on the bank, with a price target of $ 26.50. However, Morgan Stanley believes Westpac is a buy with a target price of $ 29.20 on the company.

Morgan Stanley and Macquarie also estimated that Westpac will pay an annual dividend of $ 1.25 per share in fiscal 22.

Macquarie believes the Big Four ASX banks may decide to proceed with a $ 4.5 billion share buyback in order to return capital to shareholders.

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