Are Bank of Queensland (ASX:BOQ) shares really going to pay a 10% dividend yield?

Is it possible that BOQ shares are going to pay a 10% yield?

| More on:
a woman with a huge happy smile on her face eyes a jar of coins next to her on a table.

Image source: Getty Images

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%.

Current focus

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.

Should you invest $1,000 in BOQ right now?

Before you consider BOQ, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and BOQ wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Dividend Investing