Long-term shareholders of Commonwealth Bank of Australia (ASX: CBA) shares may be pleased with the dividends they're receiving today. But should new investors be interested in the ASX bank shares for passive income?
Australia's biggest companies like CBA and BHP Group Ltd (ASX: BHP) are well-known for their dividend payments. The franking credits are an excellent bonus.
In the 2024 financial year, the Commonwealth Bank board of directors increased its annual dividend per share to $4.65. That's an increase of 3% year over year.
That big full-year payout represented 79% of cash net profit after tax (NPAT), which was the upper end of its target dividend payout range.
But that's the past. What about 2025? Let's look at the forecast payout and the dividend yield.
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Projected CBA dividend for 2025
Pleasingly, Commonwealth Bank is forecast to boost its payout in the 2025 calendar year. The bank has lifted dividend payments to shareholders each year since 2020, when it had to reduce the distribution.
Commsec independent forecasts project CBA to pay an annual dividend per share in 2025 of $4.95.
At the current CBA share price, the bank is expected to pay a fully franked dividend yield of 3.2% and a grossed-up dividend yield of 4.5%, including franking credits.
Why is the yield so low?
A dividend yield is decided by two key factors.
The first is the dividend payout ratio. This is how much of that year's profit the bank pays to shareholders. CBA is predicted to generate $6.31 of earnings per share in FY25, so a $4.95 annual dividend would translate into a dividend payout ratio of 78.4%.
The other factor that influences the dividend yield is the price/earnings (P/E) ratio — what multiple of its earnings is it trading at? CBA is valued at approximately 25x its FY25 estimated earnings. This is a high P/E ratio for a bank.
Let's compare Commonwealth Bank to other banks. National Australia Bank Ltd (ASX: NAB) shares are trading at 16x FY25's estimated earnings, and Westpac Banking Corp (ASX: WBC) shares are valued at 15x FY25's estimated earnings.
Ultimately, I don't think CBA shares are a compelling dividend option for new investors. Its savings accounts currently offer a higher level of passive income, and the high CBA share price valuation is a risk.
I'd rather consider other ideas, like Telstra Group Holdings Ltd (ASX: TLS) shares, which currently have a grossed-up dividend yield of 6.3%, including franking credits.
