Monthly Dividend Stock In Focus: Banco Bradesco S.A.

Most stocks that pay dividends, do so on a quarterly, semi-annual, or annual basis. But there is a small group of stocks that pay their dividends on a monthly basis. Monthly dividend stocks are naturally appealing for investors, as they make 12 dividend payouts to shareholders each year.

Monthly dividend stocks are equally rare when it comes to international dividend stocks. Banco Bradesco S.A. (BBD) is a monthly dividend stock with a yield above 4%.

Of course, investors should exercise caution when it comes to monthly dividend stocks. As always, investors should evaluate the company based on its business model strength, competitive advantages, and growth potential before buying shares.

This article will discuss Banco Bradesco in greater detail.

Business Overview

Banco Bradesco is a financial services company based in Brazil. It offers various banking products and financial services to individuals, corporations, and businesses in Brazil and internationally. The company’s two main segments are banking and insurance, including checking and savings accounts, demand deposits, time deposits, as well as accident and property insurance products and investment products. The company generates around $20 billion in annual revenue.

Last year was very difficult for Banco Bradesco, as the global economy was negatively impacted by the coronavirus pandemic. Fortunately, 2021 has been a year of recovery for banks such as Banco Bradesco, which are benefiting from the return to economic growth.

Source: Investor Presentation

On May 4th, 2021, Banco Bradesco reported its Q1 results for the period ending March 31st, 2021. The banking segment’s net interest income was $2.98 billion for the quarter, representing a 7.4% growth year–over–year. Income from insurance also grew by 7% year–over–year due to operating cost efficiencies. The company’s client base remained rather stable during the quarter.

Net income reached $1.24 billion, compared to the unprofitable Q1 2020, due to the company suffering non–recurring expenses last year amid the pandemic outbreak. Quarter–over–quarter, net income declined by 4.2%, however, due to the end–year seasonality of Q4, which had boosted profits slightly. EPS for the quarter was $0.13, a 7.1% decline quarter–over–quarter.

We raise our FY2021 EPS expectations from $0.50 to $0.56 amid better–than–expected cost-cutting prospects, as displayed in the company’s latest results. Results are likely to be relatively stronger going forward, though we remain cautious due to the continuous depreciation of the Brazilian Real against the dollar.

We’ll now take a look at Banco Bradesco’s growth prospects in detail.

Growth Prospects

Banco Bradesco’s earnings-per-share growth has been improving gradually in constant currency but has shown as flat or reduced over the years when converted in USD, due to BRL/USD depreciation. Foreign exchange risk is a major consideration for U.S. investors when buying international stocks.

That said, the company has been successful in generating organic growth. In Q1, the company reported it expanded its loan portfolio to $134.9 billion, a 7.6% growth year–over–year, or 2.6% quarter–over–quarter. Additionally, its client base in its AGORA digital investment brokerage app grew by 15.5% to 632K, with $12.11 billion of invested funds. While we would typically price in positive growth in the company’s EPS results, such growth could be wiped once again by FX changes.

Banco Bradesco possesses competitive advantages that should fuel its expected growth, primarily its size and industry position. The company’s Basel ratio currently stands at 13.6% (the minimum capital ratio banks must maintain to ensure solvency is 8%), which makes for a healthy capital structure. Liquidity coverage stands at 162.9%, also ample to ensure available funds if needed.

Dividend Analysis

We continue to expect FY2021 dividends of $0.20 per share, reflecting the company’s historical dividend policy. With a current share price of ~$4.80, the stock has a 4.2% dividend yield. This is an attractive yield, particularly as the S&P 500 Index yields just 1.4% on average right now.

And, BBD stock is even more appealing with its monthly dividend. Dividend payments are made on a monthly basis, which is quite rare for an international company. The company usually pays around $0.0036 per share each month, accompanied by two special dividends per year, which define the final amount.

It is worth noting that the company had consecutively grown its dividend annually from 2012 to 2019, but again, FX changes have distorted that amount.

When it comes to dividend safety, we expect the company to report a full-year EPS of $0.56. This means the company has a projected dividend payout ratio of 36% for 2021, a very healthy payout ratio that indicates the dividend is sustainable, barring a deep and severe economic downturn in Brazil.

While Banco Bradesco’s dividend is not consistent and will continue to vary based on the company’s underlying results and FX changes, a base level (0.0036/month) should be considered quite safe, being well–covered by the company’s cash from operations. The company continued to pay its base monthly rate even under the Great Financial Crisis, despite its financials suffering along with the rest of its sector.

Final Thoughts

Banco Bradesco struggled last year due to the coronavirus pandemic, but the company’s financial results have bounced back in 2021. Banco Bradesco is also a well–managed financial services company. In its original Sao Paolo listing, the stock has delivered investors positive returns over the years when valued in constant currency.

However, for American investors, the company’s underlying growth has been wiped out by the non–stop depreciation of BRL/USD. Currency risk is an important factor when it comes to international stocks, and BBD is a prime example.

Shares currently yield above 4% and make monthly dividend payments, both of which make the stock appealing for income investors. And with a payout ratio below 40%, the dividend payout appears secure. At the same time, the company poses various risks including foreign exchange and economic conditions in Brazil.

Therefore, only risk-tolerant income investors should consider buying BBD stock.

Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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