WBC - Westpac

[Snoopy]

Westpac dividends have had associated NZ imputation credits (to a limited degree) for several years now. You can claim these imputation credits as tax paid in New Zealand on your New Zealand income. However these imputation credits are not paid to 28% and are insufficient to extinguish your NZ tax obligations on the whole Westpac dividend.

Some dividend hounds spurn overseas shares because the dividends they pay do not come with NZ imputation credits attached. However Westpac is an exception as it does offer NZ imputation credits, courtesy of the highly profitable fully owned subsidiary Westpac New Zealand. We cannot buy shares in Westpac New Zealand though, only the Australian parent company. The Westpac dividend has been remarkably steady in $A terms, albeit it has taken a hit in December 2019, a drop which looks likely to stick over the next few years. NZ investors have some exchange rate volatility to deal with when banking their dividends. Nevertheless in recent years the volatility of the exchange rate between NZ and Australia has been markedly less than between NZ and other major trading currencies. Why the dividend reduction? Westpac has more shares on issue now after the December share issue. And Westpac needs to retain more earnings to remain 'unquestionably strong' in the eye of the banking regulators. So although the dividend has been reduced, the trade off is that shareholders' investment in WBC should be 'safer' going forwards.

The table below outlines the dividends paid over the past five years and the benefits accruing to NZ shareholders from those imputation credits.

Payment Date	dps ($A)	AUD/NZD Exchange Rate	dps ($NZ)	Imputed Credit ($NZ)	Gross Dividend ($NZ)
02-07-2014	0.90	0.9272	0.9707	0.0600	1.0307
19-12-2014	0.92	0.9474	0.9711	0.0600	1.0311
02-12-2015	0.93	0.8806	1.0561	0.0600	1.1161
21-12-2015	0.94	0.9412	0.9987	0.0600	1.0587
04-07-2016	0.94	0.9601	0.9791	0.0700	1.0491
21-12-2016	0.94	0.9529	0.9865	0.0700	1.0565
04-07-2017	0.94	0.9577	0.9815	0.0700	1.0515
22-12-2017	0.94	0.9105	1.0325	0.0700	1.1025
04-07-2018	0.94	0.9151	1.0272	0.0700	1.0972
20-12-2018	0.94	0.9526	0.9868	0.0700	1.0568
24-06-2019	0.94	0.9503	0.9892	0.0700	1.0592
20-12-2019	0.80	0.9595	0.8338	0.0700	0.9038
Total			11.81	0.80	12.61

80c extra over five years is not a game changer. But it is not to be sneezed at either. I observe that although the last dividend was reduced, the imputation credit attached to that dividend was not reduced. So going forwards, the Westpac imputation credit is likely to be more important in relative terms than in past years.

SNOOPY