Value the BEN share price using its dividend yield

Core Viewpoint - The article discusses the valuation of bank shares in Australia, particularly focusing on Bendigo & Adelaide Bank Ltd (BEN) and the methods used to assess their value, including Price-Earnings Ratio (PER) and Dividend Discount Model (DDM) [1][3][6]. Valuation Methods - The Price-Earnings Ratio (PER) is a common valuation tool that compares a company's share price to its earnings per share, providing a basic measure of valuation [3][4]. - A comparison of BEN's current share price of $12.65 and its earnings per share of $0.87 results in a PER of 14.5x, which is lower than the banking sector average of 19x, suggesting potential undervaluation [5]. - The sector-adjusted PE valuation for BEN, calculated by multiplying its earnings per share by the sector average PE, results in a value of $16.87 [5]. Dividend Discount Model (DDM) - The DDM is highlighted as a more reliable valuation method for banks, focusing on forecasting future cash flows based on dividends [6][8]. - Key inputs for the DDM include the dividend per share, assumed growth rate (e.g., 2%), and required return rate (e.g., 7%) [7][9]. - The valuation formula used is Share price = full-year dividend / (risk rate – dividend growth rate), with various growth and risk rate assumptions yielding a valuation of BEN shares at $13.32, adjusted to $13.75 with a higher dividend payment [8][10]. Franking Credits Impact - The article notes that since BEN's dividends are fully franked, an adjustment for gross dividends (including franking credits) results in a valuation of $19.64 based on a forecast gross dividend payment of $0.93 [11]. Growth and Risk Rate Analysis - A table is provided showing various valuations based on different growth rates (2% to 4%) and risk rates (6% to 11%), indicating how these factors significantly influence the share price valuation [12]. - The analysis emphasizes that these models serve as starting points, and thorough qualitative research is essential for accurate investment decisions [12][13].