Should you buy CBA (ASX:CBA) shares in July 2021 for the dividend yield?

Australia’s largest bank is set to report its dividend next month.

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The Commonwealth Bank of Australia (ASX: CBA) share price has travelled higher throughout 2021, reflecting stable gains for investors.

However, most ‘mum and dad investors’ put their money towards CBA shares, not for share price growth, but for its dividends.

As the largest company on the ASX, CBA shares are seen as a safe haven to park your spare cash and reap the rewards. Even during the midst of COVID-19, the bank still managed to pay a dividend of 98 cents to shareholders in September 2020.

In fact, CBA increased its dividend payout by over 50% to $1.50 per share earlier this year. This reflected the bank’s optimism in quickly returning to pre-COVID levels following Australia’s economic rebound.

What to expect for the CBA’s upcoming dividend?

CBA’s hotly anticipated full-year financial results aren’t due for another 2 weeks (11 August 2021).

According to Bell Potter, investor expectations are running high with analysts forecasting the bank’s cash net profit to increase. Traditionally, this means that the company’s dividend will also receive a boost when compared against the previous dividend payout.

As such, the final dividend for FY21 is projected to come in at a fully-franked $1.84 per share. When combining this with the fully-franked interim dividend of $1.50 per share, this equates to $3.34 per share for the entire FY 2021 year.

When factoring in the current CBA share price of $99.45, this gives a dividend yield of 3.34% ($3.34 / $99.45).

How is the CBA share price valued?

Two recent broker notes came earlier this month with varying price points ahead of the upcoming company’s FY21 result.

Australia’s largest investment house, Morgans raised its 12-month price target for CBA by 4.1% to $76. Following suit, Bell Potter also increased their outlook on the company’s shares, adding 17% to $105. However, the firm downgraded the bank from “buy” to “hold” based on current valuations.

CBA share price snapshot

Over the past 12 months, CBA shares have accelerated to more than 30%, with year-to-date up 20%. The company’s share price reached a record high of $106.57 last month before some profit-taking took place.

Based on valuation grounds, CBA commands a market capitalisation of roughly $176.4 billion, with over 1.7 billion shares outstanding.

Should you invest $1,000 in CBA right now?

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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