The ASX bank share MyState Ltd (ASX: MYS) may be one of the most underrated options in the financial sector for passive income.
MyState is a relatively small financial institution which has a significant position in the Tasmanian market, though it's also spread across other states. It recently merged with Auswide, another smaller financial institution with the majority of its lending from its Queensland. The combined MyState business is now nicely diversified.
The financial institution isn't as known as names like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB). This lower level of investor attention means the company can provide an attractively-high dividend yield.
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Large dividend yield projected
The business is providing investors with a relatively generous dividend payout ratio, providing good cash flow for investors.
Dividends are decided by the board of a company and are influenced by the company's profitability, its balance sheet and its outlook.
Looking at the projections on Commsec, the ASX bank share could pay an annual dividend per share of 23 cents. That translates into a grossed-up dividend yield of 7.4%, including franking credits.
Considering CBA is projected for FY26 to pay a grossed-up dividend yield of 4.4% (including franking credits), I think MyState is a more appealing option.
Why this could be a good ASX bank share to buy
There are quite a few reasons to like the business aside from the large dividend yield.
MyState is expecting the merger with Auswide to deliver annual pre-tax cost synergies of between $20 million to $25 million over a three-year period. The increased size of the business will also increase capacity to invest in profitable growth opportunities. This should deliver double-digit earnings per share (EPS) growth based on the full synergy benefits.
The ASX bank share says that it's strongly capitalised, providing capacity for growth.
I think the bank could also benefit from increasing credit demand which I expect will occur, or is occurring, due to the RBA cash rate cuts we've already seen this year as it spurs demand.
The MyState share price is currently trading at 13x FY26's estimated earnings, according to Commsec. I think this is a very appealing valuation to buy at.
