Is it possible that Bank of Queensland Limited (ASX: BOQ) shares are really going to pay a 10% dividend yield in the next couple of years?
BOQ is one of the larger banks on the ASX outside of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).
It runs a few different brands including the BOQ brand, as well as Virgin Money Australia and ME Bank after acquisitions.
But what about this large dividend yield?
BOQ’s potential 10% dividend yield
The possible 10% dividend yield refers to the projected annual dividend for the 2023 financial year with analysts giving their best guess as to what the shareholder payment will be for that year.
The broker Morgans currently has a full year dividend estimate of $0.55 per share for FY23.
At the current BOQ share price, that translates into a future grossed-up dividend yield of 10.1%.
That dividend is based off the regional bank generating $0.91 of earnings per share (EPS), which means that the bank would only have a dividend payout ratio of 60%.
Why is Morgans positive about the future?
The broker thinks that the bank is going to make higher returns in the future for shareholders and points out that there are expectations for growth in FY22.
BOQ says that it’s focused on achieving sustainable profitable growth. In FY22 it’s expecting at least 2% jaws, driven by above system growth in its BOQ and Virgin Money Australia brands, and by returning ME Bank to around system growth by the end of year.
The net interest margin (NIM) is expected to decline mid to high single digit basis points in FY22 because of the ongoing low interest rates and the amount of competition in the space.
What about the FY22 BOQ dividend?
The current financial year isn’t expected to be quite as big as 10%.
Each broker has a different projection, but we’ll stick with what Morgans is thinking.
The broker has pencilled in an annual dividend of $0.49 per share for the 2022 financial year.
At the current BOQ share price, that would represent a grossed-up dividend yield of 9%.
BOQ is focused on business growth as well as the integration of ME Bank, which is “well progressed”. Management say the bank is executing against the strategic transformation roadmap.
Over the next year, the second phase of the Virgin Money Australia digital bank will be available to customers and will include home loans and additional deposit products.
Work is also “well progressed” on the first phase of the BOQ digital bank which leverages the investment in Virgin Money.