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Highlights
- Sector comparisons suggest upside for (BEN)
- Dividend discount model estimates share price above current level
- Fully franked dividends enhance appeal of this ASX200 stock
Bendigo & Adelaide Bank (ASX:BEN) has maintained investor interest since the market lows of 2020, especially among those focused on income-generating ASX dividend stocks. With its current share price trading around $11.86, some valuation methods suggest there may be more room to grow.
One commonly used technique to assess value is the price-to-earnings ratio (PE ratio). This measures how much investors are willing to pay per dollar of earnings. Based on its FY24 earnings per share (EPS) of $0.87, Bendigo & Adelaide Bank trades on a PE ratio of 13.6x. In contrast, the average PE ratio across the banking sector is approximately 18x.
Applying a sector-average multiple to BEN’s EPS implies a fair value closer to $15.96 – significantly above its current market price. This gap may suggest that (BEN) is trading at a discount compared to peers such as Macquarie Group (ASX:MQG) and Bank of Queensland (ASX:BOQ), which also form part of Australia’s financial sector.
Another approach analysts often use is the Dividend Discount Model (DDM). This method works well for banks given their history of steady dividend payouts. For Bendigo & Adelaide Bank, the most recent annual dividend is $0.63. Assuming a modest growth rate and varying risk rates between 6% and 11%, the DDM suggests a valuation of around $13.32. If using a slightly adjusted dividend estimate of $0.65, the valuation edges higher to $13.75.
However, when incorporating the benefits of fully franked dividends – which include franking credits – the gross dividend payout could reach around $0.93. Using this figure, the DDM suggests a potential share value of $19.64, showcasing the enhanced income benefits eligible shareholders can enjoy.
For investors looking at ASX200 constituents, Bendigo & Adelaide Bank offers a mix of capital growth potential and reliable dividend income. As part of the financial backbone of Australia’s top 200 companies, the bank remains a core consideration in the broader ASX dividend stocks landscape.
While valuation models offer useful insights, they are just one part of the puzzle. Investors typically conduct extensive qualitative analysis on business fundamentals, economic conditions, and management strategy before forming any conclusion. Nonetheless, these models provide a useful lens through which to view a stock like (ASX:BEN) in today’s market.
