Commonwealth Bank of Australia (ASX: CBA) has announced a final dividend of $2.30 per share for the year ended 30 June 2017, giving shareholders a total dividend of $4.29 for financial year 2017.
The final dividend of $2.30 represents an increase of 3.6% over the $2.22 dividend that was declared at this time last year. Based on the total dividends declared over the past 12 months, Commonwealth Bank's shares are now trading on a fully franked dividend yield of 5.3%, or 7.5% when grossed up for franking credits.
The bank also reported 4.6% growth in cash earnings to $9.88 billion – a beat on market consensus expectations of $9.809 billion, according to Business Insider – and earnings per share of $5.74, up 3.4% on the previous year. You can read more about the group's overall performance, here.
Indeed, the dividends paid by all four of Australia's major banks have been under scrutiny for some time, particularly in light of the tougher regulatory environment. Hence, Commonwealth Bank's willingness to increase its dividend payments to shareholders has helped to boost its share price 1.3% today. Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are all trading higher, as well.
Although some investors would say that Commonwealth Bank is a safe bet for new investment dollars today, investors do need to weigh up the risk versus reward potential.
At $81.67, Commonwealth Bank's shares aren't cheap. In fact, according to figures from The Wall Street Journal, the current share price target is $83.06, based on the consensus estimate of analysts. That's just 1.7% above today's price.
That doesn't mean that Commonwealth Bank's shares can't, or won't, trade above that price, but it is the average value that analysts covering the company believe the bank is worth. Assuming they're right, that doesn't represent very much upside potential.
By contrast, the banks are cyclical, by nature, meaning that the Commonwealth Bank share price could be hit hard if the economy were to take a turn for the worse, or if real estate prices around the country began to fall.
Commonwealth Bank has, for a long time, been one of Australia's greatest and most reliable businesses, and investors have been well rewarded as a result. The bank could continue to generate strong results, as it did today, but investors do need to weigh up whether or not it's worth a position in their portfolios.
