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Commonwealth Bank’s profits set to surge

When Commonwealth Bank of Australia (ASX: CBA) releases it full-year profits on Wednesday, it is expected that the bank will post a new record for the largest profit ever realised by an Australian bank.

Whilst analysts are anticipating a profit between $7.6 billion and $7.7 billion to be recorded – which would topple the record the bank set last year which was $7.1 billion – one of the biggest talking points is what the bank intends to do with it!

The bank’s share price has soared 32% since this time last year (making it Australia’s largest company measured by market capitalisation) as investors have elected to take advantage of its high dividend yield and defensive nature with interest rates sitting at record lows. As such, it is expected that the bank will choose to reward its shareholders by increasing its dividend payout.

However, how it will choose to do this is anyone’s guess. Whilst some analysts are expecting that the bank could payout a special one-off dividend of between 10c and 20c per security, others are suggesting that it could instead choose to pay a higher than previously flagged regular dividend. Should the bank choose the latter option, analysts are expecting a dividend for the second half to be as much as $2 per share.

As such, CBA’s regular dividend for the year could be as high as $3.64, which is a 9% increase from the $3.34 paid last year.

Despite having plunged by over 13% between May and June, the bank’s share price has once again continued its climb and recorded its highest ever price of $74.90 per share late last month.

Foolish takeaway

Despite the hefty dividend yields maintained by Commonwealth Bank, along with rivals Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ), investors should be cautious of buying shares of the banks, which stand little chance of delivering market beating returns in the long run.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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