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Should you buy Bendigo and Adelaide Bank shares for its massive dividend?

The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has had a disappointing start to the week.

In morning trade the regional bank’s shares have dropped 3% lower to $10.80 following the release of its half year results.

Here’s how the bank performed compared to the prior corresponding period:

  • Statutory net profit after tax (NPAT) up 0.2% to $203.2 million.
  • Cash earnings flat at $219.8 million.
  • Cash earnings per share down 0.4% to 45.1 cents.
  • Return on equity down 19 basis points to 7.94%.
  • Retail deposits up 3.2% to $52.3 billion.
  • CET1 ratio up 14 basis points to 8.76%.
  • Interim dividend flat at 35 cents per share fully franked.

Although the market seems to be a touch underwhelmed with the result, managing director Marnie Baker appeared to be pleased with the bank’s performance during the half.

She believes the result demonstrates “strong customer loyalty and increasing customer growth, despite a challenging operating and external environment, as the Bank executes on its vision of being Australia’s Bank of choice.”

In addition to this, Baker stated that: “Our robust market-leading funding position continues, providing flexibility to fund asset growth and manage margin. The solid performance of our business, particularly in a subdued banking sector facing ongoing disruption and regulatory changes, is further highlighted by continued increase of funding sourced from retail customers.”

Should you invest?

At present Bendigo and Adelaide Bank’s shares are trading at ~14x earnings and provide a trailing fully franked 6.5% dividend yield.

While the dividend is very attractive and there were positives during the half, such as strong customer growth, increased retail deposits, and improvements in its CET1 ratio, I’m not a buyer of its shares just yet.

At present I see more value in the shares of banking rivals Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), especially given their exposure to a solid performing business lending market.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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