Could the projected grossed-up dividend yield of Commonwealth Bank of Australia (ASX: CBA) make the CBA share price a buy?
CBA is still the biggest bank on the ASX, ahead of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
However, since 8 November 2021, CBA shares have dropped around 10%. At the end of November it had actually fallen to around $93.20.
It was in the middle of November 2021 that CBA released its FY22 first quarter trading update.
FY22 first quarter trading update
The first three months of FY22 showed a statutory net profit after tax (NPAT) of $2.3 billion in the quarter.
Meanwhile, the unaudited cash net profit was $2.2 billion. That was up 20% on the first quarter of FY21, however it was down 9% on the quarterly average of the second half of FY21. The bank said that pre-provision profits were stable. Profit can have a key influence on the CBA share price.
Income was down 1%, or flat excluding the divestment of Aussie Home Loans, with above system growth helping to offset continued margin pressures and lower non-interest income. CBA said its net interest margin was "considerably lower", with home loan price competition and the low interest rate environment affecting things. Home lending growth year on year was 7.6%.
Expenses were down 1%, with lower remediation costs offsetting higher staff expenses. The loan impairment expense was $103 million in the quarter, or 5 basis points of the average gross loans and acceptances.
In terms of its balance sheet, CBA said that its common equity tier 1 (CET1) ratio was 12.5% at 30 September 2021. After the share buy-back and second half dividend, the pro forma CET1 ratio was 11.2%.
CBA dividend expectations
Different analysts have different expectations for the CBA dividend.
Looking at Commsec, which has independent third-party estimates, CBA is expected to pay a full year dividend of $3.84 per share in FY22 and $4.03 per share in FY23. That translates to a grossed-up dividend yield of 5.5% in FY22 and 5.8% in FY23.
There are plenty of sell, or equivalent, ratings on CBA at the moment.
One of the latest negative calls has been Macquarie, which rates it as a sell/underperform. It notes the continuing price pressure in the home loan market. The broker is expecting lower dividend payments of $3.80 per share and $3.90 per share in FY22 and FY23 respectively, translating to grossed-up dividend yields of 5.5% and 5.6% respectively at the current CBA share price.
Another negative call this month has come from Morgans, which has a price target of just $73 on the business (and reckons it's a sell), also noting the margin pressures, though increasing interest rates could help profit.
Morgans is expecting CBA to have a grossed-up dividend yield of 5.5% in FY22 and 6% in FY23.
