Arguably the most anticipated earnings result of the season is Commonwealth Bank of Australia's (ASX: CBA) FY23 half-year on Wednesday. Investors will be looking to see if the banking giant can continue to deliver sizeable dividends to CBA shareholders.
Today, shares in Australia's biggest bank are tracking lower after crossing the $110 barrier last week. At the time of writing, the CBA share price is sitting at $109.35 — down 0.6% from its previous closing point.
In a stellar start to 2023, CBA shares have returned more than 8% so far this year. While the capital growth is exceptional, those relying on the big four bank for income will be hoping for a juiced-up interim dividend.
Will income investors be able to celebrate?
Rising interest rates have been a major headache for mortgage holders, but they might have set the stage for a stupendous result from CBA on Wednesday.
One of the key metrics for banking revenue is the net interest margin (NIM). The bigger the difference between interest earned (loans) and interest paid (deposits), the more revenue we can expect to see.
Many analysts are expecting a tremendous half from CBA for the December ending period fuelled by a widening NIM.
According to Bloomberg, the consensus revenue estimate sits at $5.2 billion. Meanwhile, the accompanying dividend per share estimate is pegged at $2.10. However, some analysts — including Jarden's Carlos Cacho — are forecasting an even strong result.
Cacho thinks the yellow-branded bank could deliver revenue in excess of $5.2 billion thanks to wider margins and minimal bad debts.
Those bad debts that Cacho mentions will be critical to the size of the CBA interim dividend. Any need to provision for credit losses could tighten the belt around cash available to shareholders. However, this is not a concern at this stage according to Cacho, stating:
I really doubt we are going to see any signs of deterioration on the bad debt front yet.
Why CBA dividends could grow
Last week, my colleague James Mickleboro covered CBA earnings estimates from Goldman Sachs. Much like others, they too are expecting a rosy result for the first half of FY23. Though, Goldman reckons $5.108 billion is a more likely cash-earnings outcome.
Despite the less optimistic earnings expectation, Goldman analysts foresee an interim dividend of $2.12 per share. If this were to be the case, it would represent an increase of 21% compared to the prior corresponding period.
The current trailing 12-month dividend yield on CBA shares is 3.5%. Notably, this places it as the lowest-yielding big four bank at present.