A Major Australian Bank With A More Generous Dividend Than JP Morgan Or Wells Fargo

| About: Westpac Banking (WBK)

I am a dividend investor, so I naturally look for companies that pay generous dividends. I recently discovered one of the largest banks in Australia which trades on the New York Stock Exchange. Upon further analysis, I was surprised to learn that this bank's 5-year average dividend yield handily beat the largest US banks.

Westpac Bank (WBK) is one of the four largest banks in Australia with assets of $670 billion and a market capitalization of $61.3 billion as of the year-ended September 30, 2012. The bank's American depository receipts (ADRs) trade on the New York Stock Exchange. One ADR represents five shares of common stock. The table below was prepared based on the Company's most recent 20-F filing for the year ended September 30, 2012. It is my understanding that a 20-F filing with the SEC is equivalent to a 10-K for foreign registrants.

Westpac Bank - Five yr earnings, dividend & share price

Currency = Australian dollars

Y/E 9/30 (AUS $$) 2011 2010 2009 2008 2007
Dividend 1.56 1.39 1.16 1.42 1.31
Basic EPS 2.24 2.07 1.23 2.00 1.85
Ratio 70% 67% 94% 71% 71%
Annual Share Price
High 25.60 28.43 26.74 31.32 28.69
Low 17.84 20.56 14.40 18.36 22.53
Avg 21.72 24.50 20.57 24.84 25.61 AVG
Dividend yield 7.2% 5.7% 5.6% 5.7% 5.1% 5.9%

SOURCE - 20-F filing - page 76 of 324 page filing

Please note that the Westpac figures are Australian dollars, however, I don't believe this skews the comparison since I am analyzing pay-out ratio and dividend yield which are ratios. The dividend yield on Westpac Bank averaged 5.% and ranged from 5.1% in 2007 to 7.2% in 2011 based on the average share price during the year. I calculated the average share price as the simple average of the high and low price for the year as disclosed in the 20-F Filing. This calculation yielded a dividend yield that was consistently above 5% with a pay-out ratio of 67-94%. If one disregards the 2009 pay-out ratio as a particularly poor year, then the dividend pay-out ratio was consistently 67-71% of earnings. The dividend yield and pay-out ratio contrast sharply with the US banks. The figures for JP Morgan Chase (JPM) are reflected in the table below.

JP Morgan Chase -Five yr earnings, dividend & share price

Y/E 12/31 (US $) 2011 2010 2009 2008 2007
Diluted EPS 4.48 3.96 2.26 1.35 4.33
Dividend 1.00 0.20 0.20 1.52 1.48
Ratio 22% 5% 9% 113% 34%
Annual Share Price
High 48.36 48.20 47.47 50.63 53.25
Low 27.85 35.16 14.96 19.69 40.15
Avg 38.11 41.68 31.22 35.16 46.7 AVG
Dividend Yield 2.6% 0.5% 0.6% 4.3% 3.2% 2.2%

SOURCE - Page 62 of 320 page annual report

JP Morgan Chase had an average 5-year dividend yield of 2.2%. The annual average yield ranged from 0.5% to 4.3%. The pay-out ratio was 5% to 34% if one excludes the anomaly of 2008 with the 113% ratio. The Wells Fargo (WFC) data is reflected in the table below.

Wells Fargo - Five year earnings, dividend & share price analysis

Y/E 12/31 (US $) 2011 2010 2009 2008 2007
Diluted EPS 2.82 2.21 1.75 0.70 2.38
Dividend 0.48 0.20 0.49 1.30 1.18
Ratio 17% 9% 28% 186% 50%
Annual Stock Price
High 34.25 34.25 31.53 44.68 37.99
Low 22.58 23.02 7.8 19.89 29.29
Avg 28.42 28.64 19.67 32.29 33.64 AVG
Dividend Yield 1.7% 0.7% 2.5% 4.0% 3.5% 2.5%

SOURCE - Pages 31 & 32 of 240 page annual report (2011) and pages 39 & 40 of 172 page annual report (2008)

Wells Fargo had an average dividend yield of 2.5% with a range from 0.7% to 4.0% during the 5-year period. This was achieved with a pay-out ratio of 9% to 50% if one excludes the 2008 anomaly of 186%.

One can easily say that this analysis is biased by the fact that Australia did not undergo the same macroeconomic challenges as the United States during the past several years. In addition, Australia did not have TARP. This is a fair critique of my analysis, however, the contrast between the dividends can be achieved by eliminating the data from 2009-2011. The dividend yields of JP Morgan and Wells Fargo were significantly lower than Westpac Bank in both 2007 and 2008 as calculated in my analysis above. If one considers 2007 as the last "normal" year before the financial crisis, then the JP Morgan pay-out ratio of 34% and the Wells Fargo pay-out ratio of 50% were inferior to the Westpac pay-out ratio of 71%. The Westpac dividend yield of 5.1% and 5.7% during 2007 and 2008, respectively, was significantly higher than the US bank yields which ranged from 3.2% to 4.3%.

Investors must surely compare and contrast these banks much further than my simple analysis to make an investment determination, however, I think the point is clear that Westpac Bank pays a much more generous cash dividend than JP Morgan and Wells Fargo. I did not include analysis for Citigroup (C) or Bank of America (BAC) because their dividend profiles are even weaker during the past few years.

I am long Westpac Bank because of the outstanding dividend compared to the major US banks. Westpac surely has its challenges due to Australia's exposure to the slowing Chinese economy and a decline in the Australian real estate market. Furthermore, strength in the Australian currency has adversely impacted certain industries such as travel. I also have a better feel for the US economy from being a life-long citizen, but I can't take the puny American dividends. So I am long Westpac Bank for the generous dividend. I will consider the major American banks again if their pay-out ratios ever reach the 65-70% threshold of Westpac.

Disclosure: I am long WBK.

Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions.