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Highlights
- WBC valuation estimated above current share price
- Sector PE and DDM models point to upside potential
- Fully franked dividends support long-term income appeal
Westpac Banking Corp (ASX:WBC) shares are currently trading around $33, raising the question: is this ASX200 heavyweight fairly valued? Investors interested in ASX dividend stocks are frequently drawn to major banks like Westpac, which continues to offer stable earnings and fully franked dividends.
Australian bank shares such as Bank of Queensland Ltd (ASX:BOQ) and National Australia Bank Ltd (ASX:NAB) are popular among income-focused investors, largely due to the consistent payouts and strong positions in an oligopolistic banking sector.
One commonly used method to assess value is the price-to-earnings (PE) ratio. At the current WBC share price of $32.92 and FY24 earnings per share of $1.92, the PE ratio stands at 17.1x. Compared to the sector average of 19x, Westpac trades at a slight discount. Using a sector-adjusted valuation based on mean reversion, multiplying its EPS by the sector PE implies a valuation closer to $36.41.
Beyond earnings, dividend-based valuation offers another perspective. A dividend discount model (DDM) considers Westpac’s dividend payments, risk-adjusted return expectations, and growth assumptions. Using a recent dividend of $1.66 and a risk rate between 6% and 11%, the model yields a valuation around $35.10. Even when adjusting to a slightly lower dividend of $1.61, the estimated valuation remains higher than the current price at $34.05.
But when factoring in gross dividends — which include franking credits, valued by many Australian investors — the valuation rises significantly. Using a forecast gross dividend of $2.30, the implied valuation climbs to $48.64.
As part of the All Ordinaries index, Westpac remains a foundational stock on the ASX, supported by Australia’s long-term financial stability and dividend culture. The bank’s consistent returns make it a noteworthy option for those evaluating ASX dividend stocks within their portfolio.
Still, it’s important to recognise that valuation models are just one piece of the puzzle. Understanding broader economic indicators — such as employment rates, property trends, and consumer confidence — is crucial. Additionally, Westpac’s evolving strategy around interest-based versus fee-based income could influence its future growth and investor appeal.
In summary, while current market pricing suggests stability, valuation tools indicate potential upside for (ASX:WBC), particularly when factoring in its generous, fully franked dividends and dominant market position.
