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Westpac shares: what’s the outlook after Citi expects a dividend cut?

Citibank has retained its buy rating of Westpac (ASX: WBC), bumped up its price target, but also warned that a dividend cut is likely for the big four bank when it releases its FY19 results.

It’s been a tumultuous year for the big four banks – as the impact of the Hayne Royal Commission continues to weigh on their share prices and outlook.

Record low interest rates haven’t helped matters for the banks either, though generally speaking, their dividend yield remains substantial.

In its full-year results for example, Commonwealth Bank of Australia announced that remediation and compliance costs associated with the Royal Commission has ballooned out to A$2.2bn in FY19.

The Westpac dividend at a glance

Westpac Banking Corp looks to be the latest of the big four in the firing line, with Citibank today arguing that Westpac may soon have its dividend cut.

As it stands, Westpac (ASX: WBC) has a dividend yield of 6.34%.

The investment bank – citing higher NZ capital requirements – noted that a dividend cut around the 10% mark is now expected in Westpac’s FY19 results.

Citi further noted that with Westpac’s current CFO poised to retire, it’s unlikely that the company would want to maintain such a high dividend, given the current medium-term challenges facing Westpac – and Australian banks more generally.

In the current climate, a dividend cut – though likely to disappoint income-focused investors – should hardly come as a surprise.

In May, the National Australia Bank Ltd was forced to cut its much coveted dividend. Here, NAB paid out an interim dividend of just A$0.83 per share – down from 2018’s interim dividend of A$0.99 per share.

Westpac share price: still a ‘buy’

Even though Citi expects Westpac (ASX: WBC) to cut their dividend, the investment bank notes that such a cut is already likely factored into the share price.

Not only that, but a stabilising property market and a strong dividend (even post a potential cut) both count as key positives for the bank.

With that in mind, Citi currently has a buy rating and a price target of A$31.25 per share on the bank.

Final thoughts

Indeed, just as Citi continues to like Westpac, it seems investors were unbothered by a potential of a dividend cut. Wespac’s share price remained mostly unmoved today, rising just 0.17% as of 15:08 AEST.

Citi’s bullish take goes against the general consensus for Westpac. According to the Wall Street Journal, the consensus rating on the bank is a hold, with six analysts rating it a hold. By contrast, four analysts rate it a buy.

Year-to-date, the Westpac Banking Corp share price has risen a quietly impressive 20.96%.


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