Why is the CBA share price sinking on Wednesday?

What's going on with this banking giant's shares today?

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The Commonwealth Bank of Australia (ASX: CBA) share price is having a tough time on Wednesday.

In morning trade, the banking giant's shares are down 2.5% to $114.10.

Why is the CBA share price sinking today?

Don't worry, today's weakness is not because of a bad update or a broker downgrade.

In fact, today's decline could be classed as good news for investors.

That's because the company's shares are falling on Wednesday after trading ex-dividend for its upcoming interim dividend.

When a share goes ex-dividend, it means the rights to the forthcoming payout are now settled.

Basically, anybody that buys shares today will not receive the bank's dividend when it is paid next month. Instead, it will go to the seller of its shares even though they don't own them on the payment date.

In light of this, a share will usually drop in line with the value of the dividend to reflect this. After all, a dividend is part of a company's valuation and you wouldn't want to pay for something you won't receive.

The CBA dividend

Last week, CBA released its half-year results and reported a 0.2% lift in operating income to $13,649 million and a 3% decline in cash net profit after tax to $5,019 million.

Despite this earnings decline, the CBA board elected to increase its interim dividend to a fully franked $2.15 per share. This was a 2.4% increase on last year's dividend and meant a payout ratio of 72% (from 68% a year earlier).

Eligible shareholders can now look forward to receiving this payout next month on Thursday 28 March.

What's next?

According to a note out of Goldman Sachs, its analysts expect a fully franked final dividend of $2.40 per share in August. This will bring its FY 2024 dividend to $4.55 per share.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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