Bank of Queensland will be in the timeout corner for a while...

Bank of Queensland will be in the timeout corner for a while yet. At least two brokers have downgraded their recommendation on the stock even though the bank delivered what it called a “solid result” with net cash earnings jumping 19% to $167 million and a 13% increase to its interim dividend to 36 cents a share for the six months to end February.
The problem is that the bank may have gone ex-growth and the dividend may not be sustainable.
UBS was surprised that the bank lifted its dividend by 2 cents as earnings per share fell. This puts its payout ratio at 79%, which the broker calls “unsustainable” given the higher reserve requirements that banks will be forced to hold under new (but yet to be enforced) regulations.
To keep yield-hungry investors happy, Bank of Queensland will need to sustain earnings growth and there are doubts that it can.
This is the key reason why JP Morgan cut its recommendation on the stock to “underweight” from “neutral” and Citigroup downgraded its call to “neutral” from “buy”.
JP Morgan thinks the bank does not generate enough excess capital to fund growth, while Citigroup thinks that the tailwinds from lower costs and improved product mix have run their course.
The negative sentiment is of particular issue to Bank of Queensland because the stock has outperformed its peers strongly in recent times (see chart below).