Commonwealth Bank of Australia dividend preview

Here’s what shareholders can expect from Australia’s largest bank tomorrow

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Australia’s largest bank, Commonwealth Bank of Australia (ASX: CBA), is set to post another record profit when it reports its full year results tomorrow.

Analysts are expecting the bank to report a cash profit of around $8.7 billion, an increase of around 11% over last year’s results. But don’t be surprised if the bank turns in a better than expected performance. Commonwealth has a history of beating market forecasts.

And shareholders could be in for a bumper increase in dividends if it does. Consensus estimates are tipping a full year dividend of around $4.19 – with $1.83 of that paid in the first half. Will CBA report more than $2.36 in dividends in the second half? It’s entirely possible.

The bank doesn’t have to post much of an increase in cash earnings to beat the market either. In the first half, Commonwealth reported cash earnings of $4,268 million. Zero growth in the second half of the financial year would see full year earnings hit more than $8.5 billion.

And with Australia’s housing boom in full swing, you could imagine that the Commonwealth has grown its loan book by more than a few percent. Add in lower wholesale funding costs and cost cutting and it seems more than likely that the bank will easily beat market forecasts.

Of course the bank has also faced tough competition, with most home lenders slashing their fixed rate mortgages to below 5%. The problem though, is that Australians still seem to be wary of fixed rates, and reports suggest not many have taken advantage of the super low rates on offer.

If CBA does report a full year dividend of $4.19, that equates to a 5.1% fully franked dividend yield. National Australia Bank (ASX: NAB) still boasts the highest trailing yield of the big four banks, at 5.7%, followed by Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corporation (ASX: WBC) on 5.3%.

Unfortunately, at their current prices, all four banks are overpriced on a number of measures, and I wouldn’t be buying in now – despite the attractive yields.

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