The CBA share price is now trading on a 3.5% fully-franked dividend yield

CBA shares could be a great option for income investors.

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Key points

  • CBA shares have risen 4% since the beginning of 2022
  • However, trading at a fully-franked forecast dividend yield of 3.5% could be attractive for income investors
  • Goldman Sachs is expecting the bank to declare a final dividend of $2.00 per share for the second half of FY22

The Commonwealth Bank of Australia (ASX: CBA) share price has been on the mend after a volatile month on the ASX.

Despite finishing 0.23% lower to $105.20 at Friday’s market close, shares in Australia’s largest bank have soared 12.5% since March.

What’s driving CBA shares higher?

Investors have been bidding up the CBA share price regardless of the current macroenvironmental headwinds in the global economy.

High inflation levels, along with concerns about a potential recession, have led to strong declines across international markets.

However, the banking giant has remained relatively resilient with a few brokers weighing in on CBA shares.

Morgan Stanley has a sell rating on Commonwealth Bank shares but if interest rates climb, this could be beneficial to the major bank.

As such, the broker cut its 12-month price target by 1.1% to $91.00 on CBA shares. This represents a decline of roughly 13% from where they trade today.

In addition, Goldman Sachs has a similar price point, lifting its 12-month outlook by 1.7% to $89.86 a share.

The company reported impressive half-year results in February, underpinned by favourable business outcomes.

It’s worth noting that the Commonwealth Bank is conducting a $2 billion off-market share buyback to reduce surplus capital and increase shareholder value. The capital management program is expected to reduce its CET1 ratio to 11.4% once completed.

Basically, this means that when CBA buys back its shares, the number of shares on its registry will decrease. With a lesser amount, this effectively increases the value of each share as the revenue and profits remain the same.

Traditionally, when this occurs, a company’s share price tends to rise over time.

CBA shares are just 4.5% off their all-time high of $110.19 reached in November 2021.

How much is CBA paying in dividends?

According to Goldman Sachs, CBA could pay a fully-franked final dividend of $2.00 per share for FY22.

Coupled with the interim dividend of $1.75, the full-year dividend would come to $3.75 per share. This reflects a 7.1% increase on FY21’s dividend. The targeted full-year payout ratio is between 70% to 80% on the bank’s cash earnings.

When factoring in the current CBA share price along with its full-year dividend, CBA’s dividend yield rises to 3.56%.

About the CBA share price

In 2022, the CBA share price is up around 4% after a bumpy ride at the start of the year.

On valuation grounds, CBA is the second largest company on the ASX with a market capitalisation of approximately $179.5 billion.

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 Scott Phillips.

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