Do CBA shares offer the highest big bank dividend yield?

What do the experts think CBA will pay in dividends this year?

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A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend

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Key points

  • CBA is expected to pay a sizeable dividend in FY22
  • However, Commsec estimates suggest that CBA will actually pay the smallest yield out of the big four banks
  • Recent broker ratings imply that the bank is a sell

Commonwealth Bank of Australia (ASX: CBA) is one of the largest payers of dividends on the ASX. But does it offer the biggest dividend yield?

With a market capitalisation of $182 billion, CBA is one of the biggest businesses in Australia. But it isn’t the only big bank on the ASX.

There is also National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).

How big is the CBA dividend going to be?

CBA paid an interim dividend of $1.75 per share on 30 March. The final dividend won’t be announced til August. So, at this stage, even the CBA Board probably doesn’t know what it will pay yet for the full year.

Commsec does have estimates for the bank dividends. But these estimates come from independent third-party providers. The Commsec estimate is an annual dividend of $3.85 per share in FY22 from CBA.

But, how much of a dividend are the other banks going to pay?

If a $3.85 annual dividend per share were paid in FY22, that would translate into a grossed-up dividend yield of 5.1%.

Using Commsec numbers again, let’s have a look at the estimated grossed-up dividend yields for FY22.

  • NAB is expected to pay a grossed-up dividend yield of 6.2% in FY22
  • Westpac is expected to pay a grossed-up dividend yield of 7.2% in FY22
  • ANZ is expected to pay a grossed-up dividend yield of 7.5% in FY22

So, CBA is actually expected to pay the smallest dividend yield in FY22 of the big four banks.

But there can be more to an investment than just how much of a yield it pays.

Is the CBA share price a buy?

Analysts are noting, and adding to, the general expectation that interest rates are going to increase in Australia this year. This is expected to be a positive for bank interest margins. It will allow the net interest margin (NIM) to climb towards levels last seen a few years ago.

However, the broker Citi still rates CBA shares a sell with a price target of $90.75. The CBA share price closed yesterday’s session at $106.71. So, this implies a decline of about 15% over the next year.

For Citi, CBA is at the bottom of the preference list. ANZ, Westpac and NAB are better picks.

The broker Macquarie has a similar rating on CBA – ‘underperform’. The CBA share price target is $90, implying a possible decline of 16% over the next 12 months. Macquarie says that lending growth is slowing down, with the sector likely to continue to see ongoing strong competition.

While higher interest rates could help the net interest margin (NIM), higher costs on customer savings could negate some of that benefit.

Valuation

According to Citi, the CBA share price is valued at 20x FY22’s estimated earnings. Macquarie’s numbers put the bank at 21x FY22’s estimated earnings.

Motley Fool contributor Tristan Harrison 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 recommended Westpac Banking Corporation. 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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