Bank of Queensland Ltd (ASX: BOQ) shares have been a fairly attractive source of passive income for a number of years. Let's look at whether FY24 can be another good year for dividend income considering all that's going on with the regional bank.
The ASX bank share is facing the wider economic fallout of higher interest rates, banking competition, and potentially rising loan arrears. BOQ is also going through a 'risk' program with regulators.
BOQ dividend estimate
Using Commsec estimates, Bank of Queensland is projected to pay an annual dividend per share of 41.9 cents in FY24.
At the current BOQ share price, this represents a grossed-up dividend yield of 10.1%. It's true – Bank of Queensland is currently projected to pay a double-digit grossed-up dividend yield to investors.
I put that down to three key factors.
The first is that the BOQ share price has fallen by 17% over the past six months. When a share price falls, it has the effect of boosting the forward dividend yield. For example, if a company with a 5% dividend yield sees a 10% decline of the share price then the yield would become 5.5% if the payout in dollar terms doesn't change.
Secondly, the business has a relatively low price/earnings (P/E) ratio which means it's valued at a low multiple of its earnings. According to Commsec, the FY24 P/E ratio is 10.5 times. This is quite low compared to valuations for many businesses.
Three, it's projected to have a fairly generous dividend payout, with the projected dividend payout ratio being 74.4% for FY24. Investors are expected to receive a majority of the profit generated in the 2024 financial year.
How likely is the payout?
Of course, BOQ needs to generate enough earnings per share (EPS) to pay for a good dividend.
In the bank's recent FY23 first-half result, the business generated cash EPS of 39 cents — down 5%. This enabled a payment of 20 cents per share, which is a pretty low dividend payout ratio.
The projected annual FY24 EPS of 56 cents represents a sizeable fall in profitability compared to HY23. However, I think it shows there's enough profit there for the business to keep paying good dividends, even if higher interest rates harm earnings.
The enforceable undertakings with regulators APRA and AUSTRAC are both unfortunate for the bank's balance sheet. BOQ has provisioned $60 million for the integrated risk program. Even with that expense, BOQ decided to go with a 20 cents per share interim dividend. With that in mind, I think it'd be conservative enough to assume half-yearly payments of 20 cents over FY23 and FY24.
An annualised 40 cents per share dividend would translate into a grossed-up dividend yield of 9.7%. Unless there's a significant deterioration in the economy over the next 12 months, it seems BOQ shares have a very good chance of paying a grossed-up dividend yield of around 10% in the next 12 months and in FY24.
