Dividend duel: Bendigo and Adelaide Bank Ltd v Bank of Queensland Limited

Credit: BOQ

The big four banks are some of the most popular shares on the ASX and can be found in most portfolios.

Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) have been solid performers with good share price growth and dividends since the GFC.

However, growth seems hard to come by in recent times. In NAB’s recent full year results it revealed a small increase of 4.2% to its cash profit. In ANZ’s results it disclosed an 18% decrease to its cash profits.

The big banks have had to sell assets and issue new shares to ensure they have the right level of Common Equity Tier 1 (CET1) capital ratios in case of an economic crash.

These changes have led to the big banks having to charge more interest on loans and pay out less interest on savings accounts to maintain profits.

However, if the products are less competitive then it gives the smaller banks a chance to steal market share with better interest rates.

Bendigo and Adelaide Bank Ltd (ASX: BEN), Bank of Queensland Limited (ASX: BOQ) and Suncorp Group Ltd (ASX: SUN) could benefit from this opportunity if they play their cards well.

Suncorp Group 

Suncorp is the most diverse out of the three. Its business incorporates a large insurance division with many different brands, a ‘life’ division and a banking division.

Suncorp’s bank division is one of the most liked out of all the banks, winning the Reader’s Digest personal banking award for 2016, which is important because happy customers are the least likely to change banks.

Its banking is focused in Queensland, so any positive or negative economic issues in the Sunshine State will affect Suncorp disproportionately more than the big four banks.

Suncorp is trading at 12.2x FY17’s estimated earnings with a grossed up dividend yield of 8.41%.

Bank of Queensland

The Bank of Queensland is also concentrated in Queensland, as the name suggests. However, it’s more like a typical bank than Suncorp is because it doesn’t have the dominant insurance division. BOQ has been building its brand by trying to convince customers that it offers a more personal service than the big four.

BOQ is trading at 10.4x FY17’s estimated earnings with a grossed up dividend yield of 10.82%.

Bendigo and Adelaide Bank 

A lot of Bendigo’s revenue unsurprisingly is generated from Victoria.

Its differentiator is that it’s a community bank supporting local groups and projects. This means it can appeal to people without necessarily having to offer the best rate because of the good causes it puts its name behind.

Bendigo is trading at 11.6x FY17’s estimated earnings with a grossed up dividend yield of 9.23%.

Time to buy?

With the price declines in the market, the yields of all three of these companies look appealing.

I’d pick Bendigo as my choice, but I wouldn’t expect much, if any, growth from these banks over the next couple of years.

Foolish investors looking for a financial company to invest in may be better off considering Challenger Ltd (ASX: CGF) or Macquarie Group Ltd (ASX: MQG) instead.

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Motley Fool contributor Tristan Harrison owns shares in Challenger Ltd. 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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