Bendigo and Adelaide Bank Ltd lifts dividend, is it a buy?

Bendigo and Adelaide Bank Ltd (ASX:BEN) reported solid full year results and increased its dividend. Should income investors buy?

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Bendigo bank

The share price of Bendigo and Adelaide Bank Ltd (ASX: BEN) has jumped around 3% higher in morning trade┬áfollowing the announcement┬áof the bank’s┬áreasonably solid full year results.

A few highlights include:

  • Statutory net profit after tax fell 2% to $415.6 million.
  • Underlying cash earnings increased 1.6% to $439.3 million (excluding one off items).
  • Cash earnings per share were 95.6 cents.
  • Final dividend of 34 cents, lifting the full-year dividend by 2 cents to 68 cents per share.
  • Bad and doubtful debts dropped 35% to $44.1 million.
  • Net interest margin of 2.16% and a common equity tier 1 ratio of 8.09%.

So what?

I feel this is a good finish to the year for the regional bank, especially considering the challenging low interest environment it operates in. I was pleased to see Bendigo and Adelaide Bank was able to improve its net interest margin in the second half of the year, despite continuing fierce competition for mortgage growth.

The massive 35% drop in its bad and doubtful debts was great to see. Management revealed in a presentation that its agribusiness credit trends have returned to normal after a spike related to its exposure to the struggling Queensland cattle industry.

Now what?

According to managing director Mike Hirst, the bank finished the year strongly. He advised that lending growth accelerated in the second half of the year and costs were well managed in this unprecedented low interest rate environment.

If the bank can carry this momentum through to FY 2017 then I feel it will be in a good position to continue growing cash earnings and its market-beating dividend. The full year 68 cents dividend works out to be a fully franked 6.8% at the current price, putting it far ahead of its bigger rivals Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA).

Overall I believe this result makes Bendigo and Adelaide Bank a good long-term investment for those with little exposure to the banking sector. With its shares trading at just 0.9x book value, now might be a great entry point.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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