Is the Commonwealth Bank of Australia (ASX: CBA) share price worth buying for the recovery in dividends over the next 12 months?
Will Commonwealth Bank of Australia go through a recovery?
In many ways Commonwealth Bank of Australia has already gone through a recovery. The CBA share price has already gone up by 52% over the last year and it's up 28% over the last six months.
That other banks of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are reporting that profit has recovered compared to the difficult COVID-19 period thanks to lower impairment charges.
CBA's latest result was a bit different because it was a half-year result covering six months rather than a quarterly update of the latest three months like the other big ASX banks.
Commonwealth Bank of Australia's half-year result for the six months to 31 December 2020, showed that statutory net profit after tax (NPAT) was down 20.8% to $4.88 billion and cash NPAT fell 10.8% to $3.89 billion.
The biggest bank said that NPAT was supported by strong business outcomes but impacted by the low rate environment and COVID-19. Its loan impairment expense was $882 million, up $233 million. The total loan impairment provision was further increased during the period with a total provision coverage ratio of 1.81%. The loan loss rate for the half was 22 basis points.
In terms of the dividend, CBA paid a $1.50 dividend per share. That was up 53% on the second half of FY20, but down 25% on the prior corresponding period.
The bank said that the capital strength was a highlight of the result. It finished the period with a common equity tier 1 (CET1) capital ratio of 12.6%.
What does CBA think about the outlook?
CBA said that although the outlook is positive, there are a number of health and economic risks that could dampen the pace of the recovery.
It continues to monitor its lending portfolios closely for any signs of stress. The bank said that the low interest rate environment will continue to put pressure on its revenue. CBA said that its strength of the balance sheet and capital position enables it to support customers and help the country through recovery.
Is it worth buying for the dividend?
CBA has had long reputation for dividends for a long time and its dividend is expected to recover over the last few years.
The broker Morgans thinks that Commonwealth Bank will pay a dividend of $3.64 per share in FY21. That translates to a grossed-up dividend yield of 5.8% at the current CBA share price.
In FY22 it's expected by Morgans to pay a dividend of $4.10 per share. That would be a grossed-up dividend yield of 6.5%.
The broker thinks that the CBA share price is expensive and doesn't think it is as good value compared to Westpac, NAB and ANZ.
Morgans has a price target of $72 on CBA shares, meaning it thinks CBA is going to go backwards fairly substantially over the next year.
