The Westpac Banking Corp (ASX: WBC) share price has a 10.4% dividend yield right now, but is it still a strong buy in 2020
The post Is the Westpac share price still a buy for dividends? appeared first on Motley Fool Australia. –
The Westpac Banking Corp (ASX: WBC) share price has been under pressure in 2020.
Shares in the Aussie bank are down 30.5% to $16.81 per share and are underperforming the S&P/ASX 200 Index (ASX: XJO).
Despite its struggles in recent times, is the ASX bank share in the buy zone at its current price?
Why the Westpac share price could be a buy
The first factor that I see is the heavy share price declines in 2020. The Westpac share price is trading down 30.5% from where it started the year.
Of course, the coronavirus pandemic has hit ASX shares hard. The banks could be especially vulnerable to a recession through lower loan quality and higher impairments.
However, a 30% discount is nothing to sneeze out. If you value the Westpac share price based on future cash flows, a couple of years of lost earnings may not justify a 30% share price drop.
There’s also the strong dividends on offer. Westpac shares are currently yielding 10.4% which makes it worth watching.
Of course, that may well change by the time Westpac reports its half-year earnings on 2 November. I think we will see a dividend cut in line with APRA’s recommendations, but the banks will continue to churn out big profits.
That could mean the Westpac share price is a cheap buy with solid long-term income prospects.
Foolish takeaway
I think an investor’s position on ASX bank shares really comes down to how they see COVID-19 playing out.
If you think we’ll see a quicker than expected recovery then I think the Westpac share price is a buy.
However, a long, drawn out recession could be bad news for the banks. I think we’d see more defaults and lower earnings in a low interest rate environment.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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