The Westpac Banking Corp (ASX: WBC) share price has been having a tough time over the last 12 months. Since this time last year, the banking giant's shares have lost over 16% of their value.
As a comparison, over the same period, the Commonwealth Bank of Australia (ASX: CBA) share price is down 5% and the National Australia Bank Ltd (ASX: NAB) share price is up 6%.
While this is disappointing, it could be good news for income investors that are looking for big dividend yields.
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Westpac dividend
According to a recent note out of Goldman Sachs, its analysts are expecting the Westpac dividend to increase to a fully franked $1.35 per share in FY 2023. This will be up almost 10% from an estimated $1.23 per share this year.
Based on the current Westpac share price of $21.46, this implies a generous 6.3% dividend yield in 2023.
But the returns don't stop there. Goldman Sachs currently has a conviction buy rating and $26.55 price target on the bank's shares. This implies potential upside of 24% for investors over the next 12 months. Combined, this suggests a total potential return of over 30% for investors.
What is the broker saying?
Goldman believes that rising rates and its cost cutting plans will be a boost to Westpac's earnings and support this dividend increase in FY 2023. It also believes Australia's oldest bank's shares are trading on very attractive multiples compared to historic levels. The broker explained:
We continue to see WBC as our preferred exposure to the A&NZ Financials reflecting: i) its strong leverage to rising rates, ii) while we think its A$8 bn FY24 cost target will now be unachievable, we still forecast a 7% reduction in underlying expenses, iii) its recent market update highlighted that the business is still investing effectively in its franchise, and iv) our 12-mo TP implies a 23% TSR [now `30%], and we note the stock is trading at a 20% discount to peers, versus the historic average discount of 2%.
