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Can we still trust CBA for dividends?


Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for dividends these days?

  • The biggest Australian bank is currently holding its annual general meeting (AGM). CBA shares are up 1.4% at the time of writing, though it was up more than 2% in early trading.

    What was said at the AGM?

    Both the CEO (Matt Comyn) and Chair (Catherine Livingstone) made comments at the AGM. The bank unveiled a new, bright logo.

    Mr Comyn mostly focused on the financial performance and operations of the business. He boasted that the bank has extended its lead in home lending and it also achieved 25% growth of transaction account balances.

    The bank continues to work on its governance, culture and risk management. It’s working on recommendations, with progress monitored.

    The FY20 result was pretty strong, under the circumstances. The bank said that its FY20 cash net profit after tax (NPAT) was $7.3 billion, down 11.3% on FY19. The net profit was impacted by higher loan impairment expenses. In the third quarter update CBA provisioned $1.5 billion for COVID-19. Its total loan impairment expense increased by $1.32 billion to $2.52 billion.

    But things are looking a bit better as each month the bank is showing less people are on payment holidays. The ASX bank said that its total number of loan deferrals was 174,000 in August 2020, down from 182,000 in July and 210,000 in June. The total loan deferral balance was $59 billion in August, down from $62 billion in July and $67 billion in June.

    Is CBA a buy for dividends?

    The dividend from CBA may be the main thing that’s on the minds of most retail/regular shareholders.

    In March CBA paid an interim dividend of $2 per share and last month it paid a final dividend of $0.98 per share share. The final dividend represented 49.95% of statutory earnings, which was within APRA’s guidance that banks should retain at least 50% of their earnings.

    It seems that CBA may try to pay around 50% of its next interim dividend, which is likely to represent a cut. Though I expect the cut won’t be as much as other big ASX banks.

    For starters, CBA’s balance sheet and profit seems to be stronger compared to its peers, which should mean that the 50% payout ratio represents a larger dividend.

    If CBA generated the same ‘cash continuing operations earnings per share (EPS)’ in FY21 as FY20, being $4.125, then it could pay an annual dividend of $2.06 per share. That would be a fully franked dividend yield of 3% at the current share price.

    However, according to the AFRCBA Chair Ms Livingstone wants to return to a 75% payout ratio when the bank is allowed. That would be a dividend of $3.09, being a fully franked yield of 4.5%.

    Written by Jaz Harrison.

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