If tomorrow's results don't meet expectations, the Commonwealth Bank of Australia (ASX:CBA) share price could fall.
Commonwealth Bank of Australia will take to the ASX stands tomorrow and report its latest profit and dividend figures, for period to 31 December 2016.
Analysts are predicting full-year profit growth of around 3.8%, which would imply profits per share of around $2.75 tomorrow morning. That compares to the bank's recent average of around 1% annual growth.
Meanwhile, dividends are expected to be in-line with last year. That is, an interim fully franked dividend of $1.98 per share could be expected if analysts are right.
However, investors will also be eagerly awaiting Commbank's commentary on Australian house prices, the economy, impending financial regulations (which could see dividend growth stall) and strategy.
Commbank has continued to invest heavily in technology and lower its cost base. This has enabled it to chalk up decent profit growth over the past five years. However, that has not stopped the bank's profit margins on lending, known as the net interest margin, being squeezed.
Investors should be on the lookout to see how that margin has held up. Looking further afield, the bank's outlook for interest rates is important because it feeds back into that margin.
If (when?) interest rates rise, Commbank could be able to widen its profit margins and post bigger profits. However, it can also mean more bad debts because home loans are harder to pay back.
So, in summary, keep on the lookout for:
- Profit margins (a.k.a net interest margins or NIM)
- An interest rate outlook
- Cost reductions (sometimes expressed as the cost to income ratio)
- Commentary around Basel requirements, higher standards could mean the bank is forced to hold off on dividend increases
- Commentary on house prices
Foolish Takeaway
In my book, Commbank shares are expensive. And analysts agree, the average fair value is around $80, according to The Wall Street Journal. That could mean it gets sold off if it doesn't reach analyst expectations.
Indeed, although we eagerly await tomorrow's results, I'd be more interested in other — cheaper — dividend stocks to buy today.
