FINA6000 Managing Finance and Dividend policy Management

a) What is the basis for selection of this stock if you suggest this as a good investment?

 

b) Would you invest all your money into this stock? If not, why not? How will you address this concern?

Answer to A:

Considering the investment prospect in Westpac Bank it can be stated that when it comes to the prospect of dividend it is hard to ignore the bank. Westpac has provided considerable amount of dividends on the Australian share market. Considering the current performance of the company with a dividend of 5.9% announced recently it can be stated that investing in Westpac could be an option (Deegan 2013). While there might be bigger among of yield on the market and in this sector however it can be stated that Westpac being the oldest bank of Australia provides investors with good mix of value, growth and income.

Even though the bank levy might put pressure on the Westpac however this can be offset through the continuous growth through Westpac out of cycle rates rises (Williams 2014). An investment in Westpac does not comes without risk an individual’s significant exposure to the banks could turn out to be a better option for making an investment portfolio in Westpac.

Answer B: 

The basis of selection of Westpac shares is the higher amount of dividend yield. The dividends yield of Westpac is completely franked as almost all of its earnings has its base in Australia (Edwards 2013). As evident from the dividend history it represents that the yearly dividends have increased 50% over the period of last nine years.

This is primarily because of the longest stretch of the economic growth in Australia since there has not been a high impact of recession over the last 20 years (Beatty and Liao 2014). Westpac DRP enables the eligible shareholders to reinvest some or most of their dividends in the additional Westpac ordinary shares with no kind of any additional cost.

The last three months has not been certainly very easy for the shareholders of Australia in the oldest bank. In this phase, the share prices of the Westpac have fell by over 11% (Weil, Schipper and Francis 2013). Over the period of last six months several shareholders on numerous occasions have cited that the share prices of Westpac were very expensive and was in the danger of declines. Amid the current trends of decline an assertion can be bought forward by stating that investing in the shares of Westpac could be the best options for the investors.

The housing market and the increasing household debt are two of the concerns which is worthy of considerations prior to making investment. However, it is not anticipated that the housing market would collapse. It can be stated that the healthy domestic economy along with the positive international outlook will enable the banks to circumvent the dangers and the banks would continue to prospect (Bushman, 2014). Considering the discussion an assertion can be bought forward by stating that it is a good time to invest in the shares of the Westpac particularly when the shares are provided with the trailing dividend of 6.3%. 

Reference List:

Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2), pp.339-383.

Bushman, R.M., 2014. Thoughts on financial accounting and the banking industry. Journal of Accounting and Economics, 58(2), pp.384-395.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.