The Westpac Banking Corp (ASX:WBC) share price is up 4% on Monday following the release of its half year results. Here’s an expert’s opinion..
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The 西太银行 (ASX: WBC) share price has been a particularly positive performer on Monday.
At the time of writing, the banking giant’s shares are up over 4% to a 52-week high of $26.08.
Why is the Westpac share price charging higher?
The catalyst for the strong rise in the Westpac share price on Monday has been the release of its half year results.
In case you missed it, for the six months ended 31 March, Westpac reported a statutory net profit after tax of $3,443 million and cash earnings of $3,537 million.
The latter was a 256% increase over the prior corresponding period and a 119% lift over the second half of FY 2020.
This allowed the Westpac board to declare a fully franked interim dividend of 58 cents per share, which represents a payout ratio of ~60%.
Goldman Sachs was forecasting cash earnings of $3,400 million, which means Westpac outperformed expectations. This goes some way to explaining the rise in the Westpac share price today.
The Senior Portfolio Manager from Plato Investment Management, Dr Peter Gardner, has been looking over the result and gave his opinion.
He said: “The half year results from Westpac support the notion that Australian banks have navigated the COVID-19 crisis exceptionally well and now we think their Australian investors, particularly the mums, dads and retirees, can breathe a sigh of relief.”
Dr Gardner believes the result points to a major turning point for bank dividends, which could bode well for the Westpac share price.
He explained: “Westpac’s results and the imminent results from its banking peers should signal a major turning point for dividends. The significant write back of provisions by Westpac is something investors should see repeated across the board and while the massive cash earnings growth comes from a low base, it’s certainly encouraging for the sector as a whole.”
“The reinstated interim dividend comes in significantly above that paid in 2020 and importantly puts it on a 6.6% annualised gross yield, with a payout ratio that is conservative at 60%,“ Dr Gardner added.
Capital returns to come?
The portfolio manager also suspects that Westpac’s margins and capital position could allow it to return additional funds to shareholders in the future.
“We are also encouraged by Westpac’s increase in net interest margin and strong CET1 capital ratio of 12.3% well above APRA’s 10.5% unquestionably strong level, giving it scope to return capital to investors in the future.”
Another positive that the portfolio manager picked up on was its cost reduction plans. He notes that the banking giant is aiming to reduce its cost base by 21% by FY 2024 compared to FY 2020 levels.
Overall, Dr Gardner believes that things are looking very positive for income investors.
He concluded: “The outlook for income investors looks remarkably bright, especially when you consider how things were looking just six months ago. While income from cash-backed assets continues to languish fortunately we are in the midst of a major turning point for dividend income, buoyed by the strong recovery of financials and also the continued strength of our major miners. We project the ASX200 is on track to return around 5% gross yield in the coming 12 months.”
The Westpac share price is now up an incredible 32.5% since the start of the year.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.