Over the years, one of the most appealing features of owning shares of Commonwealth Bank of Australia (ASX: CBA) was the dividend yield.
The yield is influenced by how high the CBA share price is and how large the dividend payment is each year. As you can see on the chart below, the CBA share price has risen significantly.
CBA is by far the biggest bank on the ASX, well ahead of National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ).
However, Commonwealth Bank also has the highest price-earnings (P/E) ratio, which results in the bank having a relatively low dividend yield compared to the other banks.
With the FY25 result, the CBA board of directors decided to implement an annual dividend per share of $4.85, which was a rise of 4% year over year. That was 79% of its cash net profit after tax (NPAT) and represented a fully franked dividend yield of 2.8%.
FY25 is now history, so let's take a look at what the CBA dividend yield could be in FY26.
Forecast FY26 CBA dividend yield
The broker UBS suggests that CBA's share price performance "should be more dependent" on underlying earnings, net tangible asset (NTA) growth, and capital returns.
Dividends are paid from net profit generation, so if CBA's payout is to increase in FY26, then its earnings will need to rise to justify a payout hike, particularly if the bank is to maintain a sustainable dividend payout ratio.
UBS is forecasting that CBA's earnings per share (EPS) could rise by close to 4% in FY26 and that its dividend yield could be 2.9% in FY26. It's predicted to be that low because of how high the CBA share price currently is.
The (independent) forecasts on Commsec suggest that CBA could pay a dividend per share of $5.25 in FY26, which would translate into a dividend yield of 3%.
Is this a good time to buy Commonwealth Bank shares?
After seeing the recent FY25 result, broker UBS wrote in a note:
CBA is trading at 4.0x Price / Book Value, which is above a +3 standard deviation level, and P/E (2-yrs fwd) of ~28.5x, +3 std dev level. We think consensus EPS estimates will likely be revised marginally down on this result, mainly NIM and cost related. UBS remains ahead of consensus on lower bad debts (8bps vs street at 11bps)…We maintain our Sell rating with a $125/share price target (from its $120/share previous level).
In other words, it's trading at significantly more expensive valuation ratios than it has in the last few years. Therefore, UBS has a sell rating on the business, suggesting that the CBA share price could fall by close to 30% within the next year.
