Can investors bank on a dividend surprise from CBA shares this earnings season?

Commonwealth Bank of Australia (ASX: CBA) shares are one of the biggest dividend payers in Australia. But how big is the dividend going to be this reporting season in August 2022? There’s one particularly optimistic estimate.

CBA is the biggest ‘big four’ ASX bank share. The others in that group are National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), and Westpac Banking Corp (ASX: WBC).

According to a dividend-focused article on Livewire Markets, Hugh Dive from Atlas Funds Management has picked out CBA (and a couple of other banks) as leading ASX dividend share ideas heading into reporting season.

Dive is “positive” on the banks and thinks that they will “surprise” markets in a good way.

According to the dividend estimate reported, CBA could pay an annual dividend per share of $4 for FY22. To come to this total, CBA would have to pay a final dividend of $2.25 per share.

Dividend increase expected

If CBA were to pay an FY22 second-half dividend of $2.25 per share, that would represent an increase of 12.5% compared to the FY21 second-half dividend of $2.

A total dividend of $4 per share would mean that the FY22 dividend would be increased by 14.2% compared to $3.50 per share in FY21.

If CBA did pay an annual dividend of $4 per share, it could be a surprise for investors because many other brokers are expecting a smaller, but still sizeable, dividend from the big bank.

The dividend of $4 per share would translate into a grossed-up dividend yield of 5.9%.

However, brokers like Macquarie and Morgan Stanley are expecting CBA to pay a grossed-up dividend yield of 5.6% and 5.5% respectively for FY22.

Why are brokers less positive?

Brokers like Morgan Stanley think that the Reserve Bank of Australia (RBA) will keep increasing interest rates and this could help the net interest margins (NIMs) of banks in the shorter term. But, as reported in a Livewire article, higher interest rates could hurt the housing and loan markets, which increases the risk of recession.

The problem is that while higher interest rates can help margins, banks could also suffer from higher bad debts and slower growth.

Morgan Stanley currently has an ‘underweight’ rating on CBA. That is similar to a ‘sell’ rating. The price target of $79 implies a possible drop of around 20% for the CBA share price.

However, Morgan Stanley does think the dividend can remain strong and grow in FY23 to a grossed-up dividend yield of approximately 6.1%.

The post Can investors bank on a dividend surprise from CBA shares this earnings season? appeared first on The Motley Fool Australia.

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More reading

• Why did the ANZ share price smash the other ASX 200 banks today?
• Own CBA shares? Union labels bank ‘irresponsible’ following major COVID change
• How high will the RBA hike rates in 2022? Here’s what the ASX 200 banks are forecasting
• ‘CBA and Westpac are too big’: One fund manager’s take on the future of ASX 200 bank shares
• Should owners of CBA shares be worried about ANZ’s mega deal?

Motley Fool contributor Tristan Harrison 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 recommended Macquarie Group Limited and Westpac Banking Corporation. 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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