At today's Commonwealth Bank of Australia (ASX: CBA) share price, is the big four ASX bank expected to offer an attractive FY22 dividend yield?
Commonwealth Bank is one of the largest banks in Australia, along with National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). Macquarie Group Ltd (ASX: MQG) is also one of the biggest financial institutions now.
Big banks like CBA are well known for their income credentials. They have relatively low price/earnings ratio (p/e ratio) multiples. Banks usually have quite high dividend payout ratios. That combination can lead to an attractive dividend yield.
But sometimes a dividend yield can take a big hit if a company decides to reduce the dividend, like what happened during 2020 when COVID-19 struck. Bank debt provisions went up, profit went down and financial companies were told to reduce their dividend payout ratios by the financial regulator.
But those COVID effects are now unwinding and the CBA half-year profit reflected this. Expectations of higher profits can be a driver of the CBA share price.
FY22 half-year profit grows
CBA reported that for the six months to 31 December 2021, statutory net profit after tax (NPAT) went up 26% to $4.74 billion, whilst cash net profit grew 23% to $4.75 billion.
The bank explained that NPAT was supported by strong business outcomes, reduced remediation costs and lower loan loss provisions due to an improved economic outlook but impacted by lower margins.
Australia's biggest bank revealed a high level of lending volume growth. Home lending increased by 8.5% (or $40.4 billion), whilst business lending went up by 12.5% (or $13.2 billion).
It maintained a high level of surplus capital with a common equity tier 1 (CET1) capital ratio of 11.8%. Lending volume growth offset a reduction of the net interest margin (NIM). The NIM dropped 14 basis points year on year due to lower-yielding liquid assets, increased switching to lower margin fixed home loans and continued pressure with home loan competition.
The half-year dividend was grown by 17% to $1.75 per share.
Annual dividend expectations
Analysts are expecting more dividend growth in the FY22 annual result. There are lots of different estimates out there.
The Commsec estimate, which comes from an independent third party, puts the FY22 dividend yield at 5.6% at the current CBA share price with a potential annual payment of $3.84 per share.
Citi thinks that CBA will pay a grossed-up dividend yield of 5.6%. Morgan Stanley reckons CBA will have a grossed-up dividend yield of 5.5%. Both of these brokers have a 'sell' rating on the bank.
One of the most pessimistic brokers on the bank, Morgans, reckons that CBA is a sell (with a price target of $77) and the FY22 grossed-up dividend yield will be just 5.1%.
CBA share price snapshot
Since the start of the year, the CBA share price has dropped 3.6%.
