The CBA share price is up 30% since March

The Commonwealth Bank of Australia share price is up by 30% in the last 3 months. We take a look at what has been driving the price higher.

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The Commonwealth Bank of Australia (ASX: CBA) share price has risen by more than 30% in the past couple of months after the heavy sell-off through February and March, which saw Commonwealth Bank shares lose almost 40% of their value.

The Commonwealth Bank share price recovery has been strong, steadily clawing back from its low of $54.26 on 23 March to reach a price above $70 at the time of writing. While CommBank shares are still some way off their pre-COVID-19 price, the share price is still above what it was in late March last year.

Lending landscape

CommBank recently announced it was offering customers who could not meet their loan repayments an extra four months. While it is good that the banks at large are extending support for retail and business customers, it may actually also benefit them in the long run by prolonging the repayment period, meaning more interest income over the lifetime of the loan.

The borrowing rates of the big four banks have also fallen this year, as the RBA cut the cash rate by a further 50 basis points and has held the official cash rate steady at a record low of 0.25%. This means CommBank and its peers have sufficient access to capital to keep lending.

Dividend payments

Commonwealth Bank is one of the most popular dividend paying stocks on the ASX. With shares currently trading at $70.66, the trailing fully franked dividend yield for CommBank shares is 6.11%, which grosses up to 8.73% when franking credits are taken into account.

Earlier in the year, CommBank maintained it would not only be sustaining its interim dividend, but also offering a dividend payout ratio above its target. Coming into the pandemic, CommBank boasted the strongest balance sheets of the big banks, thus making it well prepared for COVID-19.

Despite this, analysts expect that the country's largest bank will need to cut its full year dividend. Commonwealth Bank is being forecast to pay total dividends of $3.50 for the financial year ending 30 June 2020. This is a 19% decrease on it its payout in FY2019 of $4.31. The bank is expected to decrease dividend payments even further to $2.65 in FY2021.

Foolish takeaway

The Commonwealth Bank share price has been moving steadily higher in recent times to regain much of what it lost, however there are still plenty of headwinds facing the economy. Heavy government stimulus is expected to end come September and this will provide a clearer view of the current economic state. All eyes will be on Commonwealth Bank come 12 August as the bank releases its full year results.

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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