Can the Bendigo Bank (ASX:BEN) 8% dividend yield make up for its share price correction?

Bendigo Bank shares have fallen, but is the dividend yield good?

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Key points

  • Bendigo shares have fallen in recent times. But can the dividend make up for it?
  • It has a trailing grossed-up dividend yield of more than 8%.
  • Analysts are expecting the bank to grow its dividend in each of the next few years

The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has been falling over the last few weeks. It has dropped close to 10% since 18 January 2022.

Can the dividend yield make up for the falling share price?

How big is the dividend yield?

FY21 saw the business generate 85.6 cents of cash earnings per share (EPS), which was an increase of 43.4%. The board decided to pay a total fully franked dividend of 50 cents per share.

At the current Bendigo Bank share price, it has a grossed-up dividend yield of 8.3%.

That’s higher than quite a few other ASX banks including Commonwealth Bank of Australia (ASX: CBA) and Macquarie Group Ltd (ASX: MQG).

The Bendigo and Adelaide Bank board is proud of the “continuing history of rewarding shareholders with a high yield and long-term returns”.

In deciding on that level of payout, Bendigo Bank said that ongoing stress testing continues to support the bank’s “strong balance sheet and capital position”.  

But that’s the past. What about the dividends for the upcoming results?

Upcoming dividends

Commsec numbers suggest the Bendigo and Adelaide Bank is going to pay a rising dividend in FY22, FY23 and FY24.

The FY22 dividend is expected to be $0.53, translating to a grossed-up dividend yield of 8.7%.

FY23’s annual dividend could be $0.54 per share. That’s a potential grossed-up dividend yield of 8.9%.

The FY24 dividend might be $0.565 per share, turning into a grossed-up dividend yield of 9.3%.

Is that enough to make up for the decline?

There are not many positive ratings on the regional bank at the moment. For example, Morgan Stanley rates the Bendigo Bank share price as a sell, though the price target is $9.50. The broker reckons that rising interest rates can help the banks beat the returns of the overall share market.

Plenty of other brokers currently rate the challenger bank as a ‘hold’ or ‘neutral’. Citi currently rates the Bendigo and Adelaide Bank as ‘neutral’ with a price target of $9.25.

It also notes the recent digital transformation announcement.

This is where the bank’s strategy is to shape the future of banking, by being customer-focused, achieving growth and making sure it has the offering to win new, young customers.

In FY22, the bank said that it was expecting above-system lending growth, driven by its consumer business and further advances in the small business and agribusiness sectors. But Bendigo Bank is also going to be focused on costs, improving productivity and preserving a strong and resilient balance sheet.

What is the Bendigo Bank share price valuation?

Using Commsec’s estimates, Bendigo Bank shares are valued at 11x FY22’s estimated earnings.

Based on Citi’s numbers, the regional bank is priced at 12x FY22’s estimated earnings.

Should you invest $1,000 in Bendigo Bank right now?

Before you consider Bendigo Bank, you'll want to hear this.

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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 owns and has recommended Bendigo and Adelaide Bank Limited. 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.

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