WBC share price at $40: here’s how I would value them

Core Viewpoint - The valuation of Westpac Banking Corp (WBC) shares is a significant concern for investors, particularly those interested in dividend income, with current share price around $40.27 and various valuation methods suggesting different worth [1][11]. Group 1: Investment Appeal of Bank Shares - The financial/banking industry is favored by Australian investors, with major banks operating in an oligopoly, making them attractive for dividend investors seeking franking credits [3]. - Other popular bank shares on the ASX include Bank of Queensland Limited (BOQ) and National Australia Bank Ltd (NAB) [2]. Group 2: Valuation Methods - The Price-Earnings Ratio (PER) is a common valuation tool that compares a company's share price to its earnings per share, with WBC's current PE ratio at 21x compared to the sector average of 20x [4][6]. - A Dividend Discount Model (DDM) is considered a more reliable method for valuing bank shares, relying on past or forecasted dividends and a risk rate [7][8]. Group 3: DDM Valuation Results - Using a DDM approach with last year's dividend of $1.66 and a blended risk rate between 6% and 11%, the valuation of WBC shares ranges from $34.05 to $48.64 when considering gross dividends [11][12]. - The expected dividend valuation of $2.30 leads to a higher valuation of $48.64, indicating the impact of franking credits on share value [12].