As one of the ASX big four banks, and indeed the largest, Commonwealth Bank of Australia (ASX: CBA) has long enjoyed a reputation as one of the ASX’s most solid dividend payers. For decades, CBA shares have paid out hefty and fully franked dividends to grateful shareholders. Albeit with the interruption that came over 2020.
So how are CBA’s dividend chops looking today? We can always just check out the current CBA dividend yield – which is sitting at 3.66% at the time of writing. But that doesn’t tell us too much more than what we can expect in income if we buy CBA shares today. So let’s check out what kind of dividend payout ratio Commonwealth Bank is paying out right now.
If you weren’t aware, a dividend payout ratio refers to how much of a company’s earnings per share (EPS) is paid out every year as a dividend. If a company is paying out 100% (or more) of its earnings, it’s a likely signal that we won’t be seeing any dividend increases in the near future. Or perhaps even that a dividend cut might be coming investors’ way.
Conversely, if a company is only paying out, say, 10% or 20% of its earnings as dividends, it indicates that there is plenty of room left in a company’s income potential runway. So let’s check out CBA and see what we can find.
What is the CBA share price’s dividend payout ratio?
CBA, like many ASX shares, has a ‘payout ratio target’ that they promise investors dividends will be paid out according to. In this ASX bank share’s case, the company intends to pay out between 70% and 80% of its cash earnings as dividends every year.
So in FY2021, CBA brought in $4.89 in earnings per share. Over the same period, the bank forked out an interim dividend of $1.50 per share, as well as a final dividend of $2 per share. Both payments were fully franked. That means CBA paid out a total of $3.50 per share in dividends for FY21. Since the bank earned a total of $4.89 in EPS, that means CBA’s payout ratio was 71.65% for FY 2021. That’s comfortably within the bank’s target payout ratio.
So there you have it, that was CBA’s most recent payout ratio. Now you know how this ASX bank is funding its dividends.
At the current CBA share price of $95.38 (at the time of writing), Commonwealth Bank of Australia has a market capitalisation of $163 billion, with a trailing dividend yield of 3.66%.