Is the Bank of Queensland share price a buy as an inflation hedge?

Could Bank of Queensland shares be a buy for an inflationary world?

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A banker uses his hands to protects a pile of coins on his desk, indicating a possible inflation hedge

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Key points

  • Inflation is now a major investor concern on the ASX for the first time in decades
  • ASX bank shares are often described as good shares for inflationary times
  • One broker backs the Bank of Queensland as a strong share to hold in this economic environment

As most investors would be aware by now, inflation is emerging as a primary issue of concern.

For decades, inflation was just something we learned about in economics class. But 2022 has seen rising prices emerge as a malevolent economic force that we all now have to take into account in the course of our investing journey.

So how does one invest in a world of inflation? One of the ASX sectors most often described as an inflation hedge is ASX banks. Banking shares have a reputation as inflation-resistant businesses since they can increase their interest rates quite easily, ensuring that inflation doesn’t eat into margins.

That’s a view shared by our own chief investment officer, Scott Phillips.

Well, the Bank of Queensland Limited (ASX: BOQ) share price may not be a big four bank. But it is still a prominent member of the ASX banking sector. So do a bank’s apparent inflation-resistant qualities apply to BOQ shares? Is this bank an ASX buy today for an inflationary world?

Bank of Queensland share price: Buy or sell today?

Well, one ASX broker who thinks so is Morgans. As my Fool colleague covered earlier this month, Morgans currently rates the Bank of Queensland share price as an ‘add’. It gives the bank a 12-month share price target of $11. That would imply a potential upside of close to 50% on current pricing.

So why is Morgans so bullish on BOQ? Here’s what the broker had to say:

We see exceptional value in Bank of Queensland’s stock. The company has been executing well on its transformation program, it continues to grow its home loan book at above-system levels, we don’t expect its NIM [net interest margin] to fare worse than the industry-wide trend, and cost synergies associated with the ME Bank acquisition are being realised at a faster rate than originally anticipated.

Morgans is also expecting big things from BOQ when it comes to dividends. It has pencilled in full-year dividends of 49 cents per share in FY2022, and 54 cents per share in FY2023. That would mean dividend yields of over 7% on current pricing if that came true, which would be an inflation hedge in itself.

So that’s why this ASX broker reckons Bank of Queensland is a strong share to hold for a world of higher inflation. Only time will tell if it’s the right call.

At the current Bank of Queensland share price of $7.49, this ASX 200 banking share has a market capitalisation of $4.81 billion, with a dividend yield of 5.87%. 

Motley Fool contributor Sebastian Bowen 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 no position in any of the stocks mentioned. 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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