Westpac Banking Corp's dividend sustainability called into question after H1 results miss

Competition, rising funding costs, the burden of major investments. These are the main themes driving Westpac Banking Corporation’s (ASX: WBC) first half narrative. The bad news for investors, is that according to several major brokers, these themes are going to continue to dog the bank’s profitability into at least FY27.

Even more critically for those of you who rely on WBC’s dividends – these factors are likely to also “pressure the substantially” of its dividend payments throughout this period.

In the wake of WBC’s first half FY2025 results, we review the latest broker views ratings, and price target changes, as well as how the bank is placed amongst its peers.

WBC H1 Results – Key Numbers

(❌ missed forecasts ✅ in-line / beat forecasts)

• Earnings Per Share (EPS) (ex-extraordinary items): $1.01 (-3.2%) vs $1.01 forecast ✅

• Net Profit After Tax (NPAT): $3.32 billion (-1%) vs $3.51 billion forecast ❌

• Net Interest Margin (NIM): 1.8% (-8 bp) vs 1.92% forecast ❌

• CET1 Capital Ratio: 12.2% (-31 bp) vs 12.1% forecast ✅

• Dividend Per Share (DPS): $0.76 (unchanged) vs $0.80 ❌

• Dividend Details: Ex-dividend on 8 May, trailing 12-month dividend yield based on 5 May close of $32.45 is 4.68%, fully franked.

WBC H1 Results – Broker Views

Citi: Rating = SELL; Target = $27.75

Citi notes statutory earnings were approximately 3-4% below the brokers forecast, largely due to the decline in NIM. The sector funding gap is increasing competition on deposits, but broker notes WBC likely compounded this issue by increasing deposits at a greater-than-sector rate. The revenue outlook will increasingly come into focus with “headwinds” forecast to drive “negative core earnings” at a time when the bank’s investment schedule will likely hamper its ability to improve on costs. Capital position was a strong point, but the uncertain outlook for the economy and unsatisfactory earnings trajectory “could pressure the sustainability of the dividend”. Citi retains its SELL rating and $27.75 target, noting WBC's “valuation still looks full relative to history”.

Macquarie: Rating = UNDERPERFORM; Target = $27.50 ⬇️ vs $28.00

Macquarie notes the result was “only a slight miss to expectations” but has still given the market reason to “review its bullish assumptions on margins, expenses, and dividends.” The broker expects its broking peers to begin to lower their forecasts for FY26 and FY27 earnings, causing consensus estimates for WBC to converge with Macquarie's own forecasts – further reduced by approximately 1%. Looking forward, Macquarie tips the impact of impending rate cuts and ongoing fierce competition in the sector will “weigh on margins” as the revenue outlook becomes “more challenging” in the current half and into FY26. “WBC remains expensive” concludes the broker, noting the bank is trading at around 17 times its FY26 forecast earnings – a 6% premium to ANZ Group (ASX: ANZ) and a 26% premium to National Australia Bank (ASX: NAB).

UBS: Rating = BUY; Target = $36.00 ⬇️ vs $38.00

UBS notes the result was “largely in-line” with consensus. Cost of capital is the greatest sticking point, however, as the bank’s portfolio skewed more towards business and institutional banking. The broker has been forced to “cut and tweak our earnings on the back of this result”, lowering cash NPAT forecasts by 6.1%, 3.6%, and 3.2% over FY25-FY27. “Even after a soft dividend, in our view, Westpac is the most credible re-rate story among the large Australian banks in a fully priced banking sector," UBS noted. The broker also added that it was more confident than its peers on WBC's cost outlook, noting the bank had a "clear cost out path". UBS was also optimistic that WBC's "strategic pivot" into business & institutional banking would help alleviate some of the perceived pressure on its revenue outlook.

WBC H1 Results – Broker Consensus Update

For all of the stocks covered, to obtain a Broker Consensus Rating, we assign a Rating Value of +1 to any broker rating better than HOLD/NEUTRAL/MARKETWEIGHT; a Rating Value of 0 for any broker rating equivalent to HOLD/NEUTRAL/MARKETWEIGHT; and a Rating Value of -1 to any broker rating worse than HOLD/NEUTRAL/MARKETWEIGHT.

We then take the average of all Rating Values and assign a Broker Consensus Rating of BUY to values +0.5 or above; a Broker Consensus Rating of HOLD for values between -0.5 and +0.5; and a Broker Consensus Rating of SELL for values -0.5 or below.

The Broker Consensus Target is simply the average of the target prices we have on file for each broker. Typically, brokers define their target price as a 12-month forecast, and each target price is based on a broker’s fundamental valuation assumptions. We have only assessed broker ratings and target prices within the last 3 months to account for recent relevance.

Westpac Banking Corp. Broker Consensus vs H1 Results 12:30pm 6 May, 2025 (assumes WBC share price of $31.82).

WBC’s average Rating Value is -0.50, resulting in a Broker Consensus Rating of SELL. This is unchanged from its prior average Rating Value of -0.50 and Broker Consensus Rating of SELL.

WBC’s Broker Consensus Target is $28.95 (down 1.4% from $29.35 prior to the 5-May first half results release). This suggests brokers collectively believe the stock is around 9.0% overvalued based upon a last price of $31.82.

How does WBC compare to other ASX banks?

Broker Consensus

• ANZ Group (ASX: ANZ): ANZ’s average Rating Value is +0.14, resulting in a Broker Consensus Rating of HOLD. ANZ’s Broker Consensus Target is $28.49. This suggests brokers collectively believe the stock is around 5.2% overvalued based upon a last price of $30.06.

• Bendigo and Adelaide Bank (ASX: BEN): BEN’s average Rating Value is -0.33, resulting in a Broker Consensus Rating of HOLD. BEN’s Broker Consensus Target is $10.38. This suggests brokers collectively believe the stock is around 9.1% overvalued based upon a last price of $11.42.

• Bank of Queensland (ASX: BOQ): BOQ’s average Rating Value is -0.50, resulting in a Broker Consensus Rating of SELL. BOQ’s Broker Consensus Target is $6.35. This suggests brokers collectively believe the stock is around 14.7% overvalued based upon a last price of $7.44.

• Commonwealth Bank of Australia (ASX: CBA): CBA’s average Rating Value is -1.0, resulting in a Broker Consensus Rating of SELL. CBA’s Broker Consensus Target is $112.22. This suggests brokers collectively believe the stock is around 32.8% overvalued based upon a last price of $166.93.

• National Australia Bank (ASX: NAB): NAB’s average Rating Value is -0.27, resulting in a Broker Consensus Rating of HOLD. NAB’s Broker Consensus Target is $33.81. This suggests brokers collectively believe the stock is around 5.7% overvalued based upon a last price of $35.85.

Dividends

• ANZ: ANZ’s current trailing 12-months dividend yield is 5.5%, 70% franked. ANZ next goes ex-dividend in November.

• BEN: BEN’s current trailing 12-months dividend yield is 5.5%, fully franked. BEN next goes ex-dividend in September.

• BOQ: BOQ’s current trailing 12-months dividend yield is 4.7%, fully franked. BOQ next goes ex-dividend in October.

• CBA: CBA’s current trailing 12-months dividend yield is 2.8%, fully franked. CBA next goes ex-dividend in August.

• NAB: NAB’s current trailing 12-months dividend yield is 4.7%, fully franked. NAB next goes ex-dividend in November.