S&P/ASX 200 Index (ASX: XJO) bank shares have a reputation for paying high levels of income to shareholders. But, could Bendigo and Adelaide Bank Ltd (ASX: BEN) shares be the best source of dividends from the sector?
For context, Bendigo Bank is a pretty big business. It has a market capitalisation of $5.2 billion according to the ASX. However, it's a fraction of the size of major banks of 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).
But, $1,000 invested in any of these businesses is still $1,000. It doesn't necessarily matter what size the ASX 200 bank share is.
Is Bendigo Bank the best choice for dividends?
I'm going to use the estimates for the dividend on CommSec for FY23.
Bendigo Bank is expected to pay a grossed-up dividend yield of 8.5% in the current financial year, based on an expected payout of 54 cents per share.
CBA could pay a grossed-up dividend yield of 5.8% if it pays an annual dividend of $4.25 per share.
NAB is projected to pay a grossed-up dividend yield of 7.4%, based on a potential payout of $1.67 per share.
Westpac may pay a grossed-up dividend yield of 8.25% if it pays $1.39 per share in FY23.
ANZ is projected to pay a grossed-up dividend yield of 8.6% based on a potential annual dividend payment of $1.54 in FY23.
The final bank I'll put in the mix is Bank of Queensland Limited (ASX: BOQ). According to Commsec, BOQ could end up paying a grossed-up dividend yield of 10.5% in FY23.
As we can see, Bendigo Bank's expected yield is right up there with the big ASX 200 bank shares. In yield terms, it seems to rank evenly with the highest-yielding major bank.
However, BOQ seems to take the prize in terms of the potential dividend size in FY23.
Direction of the dividend
Bendigo Bank is expected to grow its dividend to 56 cents per share in FY24, which represents an attractive trajectory.
However, BOQ is expected to pay a similar-sized dividend in FY24, which would mean no growth.
Even so, the FY24 yield would be 10.4% from BOQ and 8.8% from Bendigo Bank.
Time will tell what the growth of the dividend is after FY24.
But, I can understand why investors may prefer one of the big ASX 200 bank shares for dividends because they may be viewed as more stable due to their size and 'too big to fail'.
Foolish takeaway
I think that Bendigo Bank can be a good source of dividends in the coming years. But, it may not be the bank that delivers the most dividend income, or the most growth. However, I do think it can do quite well in the shorter term in this rising interest rate environment.
