Question 1: Since your report on Westpac (WBC) shares (Aug 2019), in light of the current market fall (Coronavirus), could you share your views on (1) whether Westpac remains your preferred bank; and (2) the likely WBC dividend payment for the next 3 years?
Answer: I prefer Westpac because, on a relative basis, it is cheap compared to ANZ and the NAB. It is Australia’s ‘number two’ bank and should trade at a premium to the ANZ and NAB. I have to say that there is not that much between the major banks, although CBA, due to its market leading position, better technology, management team and stronger capital position, is the clear leader. That is why it has performed the best during the down-turn.
In terms of Westpac’s next dividend, it is clearly going to be cut. According to FNArena, the broker market consensus for FY20 is 148.4c and 141.9c for FY21. (Last year, Westpac paid 174c in dividends, the year before 188c). This would imply that the interim dividend (to be declared in early May) will fall from 94c in FY19 to around 65c to 70c. Citi (see this week’s Buy/Hold/Sell) forecasts 65c.
Question 2: Monday’s newsletter (see https://switzersuperreport.com.au/4-measures-to-help-retirees-investors-and-superannuants/) touches on this briefly. I’m a superannuant where my total super balance is now well under the $1.6M transfer balance cap. By converting the accumulation phase to a second pension phase (total still under the $1.6m cap), does that mean that my fund will become tax free?
Answer: Yes (assuming you are eligible to commence a pension).
Question 3: CBA shares were trading around $90 at the record date for the Dividend Re-Investment Plan (DRP). They are now $60 and the dividend is to be paid at end of the month. What will be the share price applied to shares issued under the DRP?
Answer: The DRP price was based on the weighted average share price over the 4 weeks ending 20 March. It has been set at $73.37. If your dividend is $1,000, you will get 13 shares, plus have $46.19 carried over to the next DRP in September.
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