Unlike its big brothers in the banking industry, the Bank of Queensland Limited (ASX: BOQ) share price is down for the year. BOQ shares started the year at $9.51 and rose as high as $10.66 in February, but have since drifted lower, hitting a 52-week low of $8.70 in April. The share price has since drifted back up slightly to where they sit today at $9.45 (at the time of writing).
This price leaves BOQ with a dividend yield of 7.21%, or 10.29% if you include the value of franking credits. So is this juicy dividend too good to pass up? Let's take a look.
What does Bank of Queensland offer?
BOQ is a relative minnow in the Australian financial sector. With a market capitalisation of $3.84 billion, BOQ pales in comparison to Commonwealth Bank of Australia (ASX: CBA) at $145.5 billion or Westpac Banking Corp (ASX: WBC) at $97.19 billion. This in itself is not a bad thing. The reputation of the 'Big Four' has been dragged through the mud recently, with the appalling revelations coming out of the Royal Commission that was held last year badly damaging the brand names of the other big banks. Bank of Queensland has taken its relatively untarnished reputation with both hands and run with it, marketing itself as 'different' from the other banks with its 'banking with a heart'-style branding.
This is important for BOQ because, as the other 'Big Banks' are so large, they can offer pricing power and economies of scale that a smaller player like BOQ can't match, so BOQ has to differentiate itself by other means.
What do the numbers say?
The numbers for BOQ are in for the first half of the 2019 financial year and it isn't very pretty. Earnings after tax, profits after tax and earnings per share are all down between 8 and 10% on a year-on-year basis, and the dividend was cut from 72 cents per share on an annualised basis to 68 cents per share. The chairman of BOQ (Roger Davis) has put this down to the banks "lending process, digital platforms and ability to attract new owner managers in the current regulatory environment." Management has put in place various initiatives to improve the situation, but the trends in this bank's financials are worrying to me.
Foolish takeaway
On its most recent numbers, I think Bank of Queensland has some structural issues that it needs to address before I personally would consider an investment. The dividend (although still very substantial) has been cut and may be cut again in the future if earnings don't improve. I would want to see a turnaround in the numbers and proof that BOQ can bring the fight up to the 'Big Four' before I would make an investment.
