Bendigo and Adelaide Bank Ltd (ASX: BEN) shares are an interesting investment decision when it comes to dividends. It's not just the big four ASX bank shares that pay large dividends to investors each year.
Many investors may already know about Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares.
But, did you know that the last 12 months of Bendigo Bank dividends amount to 53 cents per share? Translating that into a dividend yield, the trailing grossed-up yield is 7.1%. Not too shabby, right?
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Dividend growth is expected
Banks are steadily recovering from the impact of COVID-19 on their financials.
Bendigo Bank is no different. Using the estimates on CMC Markets, the regional bank is expected to grow its profit and dividend per share in FY23.
The forecast for earnings per share (EPS) is 85.5 cents in FY23 and the annual dividend per share is expected to be 56.5 cents per share.
In FY24, the dividend is expected to grow again to 59.8 cents per share.
Now, that level of growth is certainly not shooting the lights out. However, a large starting yield with ongoing growth could be attractive.
The FY23 grossed-up dividend yield is therefore expected to be 7.5% and 8% in FY24.
However, there's more to the investment question than just the dividends and their yield.
What do analysts think of the Bendigo Bank share price?
The Bendigo Bank share price has delivered outperformance in 2022 compared to the other banks.
In 2022, Bendigo Bank has risen by 15%. That compares to:
A 2.6% fall in the CBA share price in 2022.
The NAB share price has risen 4.6%.
The ANZ share price has fallen by 13.5%.
The Westpac share price went up 4.4%
After this period of outperformance, the broker Macquarie rates Bendigo Bank as underperform due to its valuation with a price target of $10. That implies a drop of the Bendigo Bank share price in the mid-single-digits over the next year. It isn't sure if the regional bank will be successful with its lofty cost goals.
Credit Suisse is a bit more optimistic about the bank. It thinks that the rising Reserve Bank of Australia (RBA) interest rate will help Bendigo Bank's net interest margin (NIM) over the next couple of financial years, though higher arrears and bad debts will somewhat impact the benefit of this.
My take on investing in Bendigo Bank shares for dividends
I think that Bendigo Bank is doing the right things to try to grow profit, including growing its loan book and hopefully improving its profit margins in the short-to-medium term.
The expected dividends seem compelling from Bendigo Bank. I'm not sure what the long-term profit growth outlook for the ASX bank share or the wider sector looks like. I suppose it partly depends on what happens with inflation and interest rates.
On income alone, Bendigo Bank could be a decent option. But, I do think there could be some other ASX dividend shares that are able to grow their profit and dividend more over the coming years.
