How big will the ASX bank dividends be in 2021 and beyond?

Now we know how much Commonwealth Bank of Australia (ASX:CBA)'s interim dividend will be, how does this shape the 2021 dividend landscape?

Five different pggy banks, indicating a diverse share portfolio

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As most ASX dividend investors would be aware of, 2020 was not the greatest year for share market income. Sure, some ASX dividend shares managed to hold the line on their shareholder payouts, or even increase them. On the latter, shareholders in Coles Group Ltd (ASX: COL), Fortescue Metals Group Limited (ASX: FMG), Brickworks Ltd (ASX: BKW), and Washington H. Soul Pattinson & Co Ltd (ASX: SOL) would have been feeling very grateful for their portfolio presence.

ASX banks have a dividend shocker

But for the ASX banks, long the stalwarts of the ASX dividend scene, it was an entirely different story. ASX banking dividends were crushed in 2020, no way around it. Commonwealth Bank of Australia (ASX: CBA) went from paying out $4.31 in dividends per share in 2019 to $2.48 in 2020. National Australia Bank Ltd (ASX: NAB) went from $1.66 in dividends per share in 2019 to 60 cents per share in 2020. Westpac Banking Corp (ASX: WBC) didn't even pay an interim dividend in 2020 for the first time in decades. It went from $1.74 in dividends per share in 2019 to just 31 cents per share in 2020. Australia and New Zealand Banking Group Ltd (ASX: ANZ) fared better than Westpac. However, it still went form $1.60 per share (partially franked) in 2019 to 60 cents per share in 2020 (fully franked).

Blame APRA

Since one or more of the big four are staples of the typical ASX dividend investor's portfolio, these reductions would have been a painful cross to bear. Not that it was entirely the banks' fault. The Australian Prudential Regulatory Authority (APRA) effectively kneecapped the banks' ability to pay dividends for most of the year last year. Indeed, the APRA-imposed 50% cap on the proportion of earnings the banks could pay out as dividend was only lifted a couple of months ago. Investors have been used to the banks paying out as much as 80-90% of their earnings as dividends in recent years. So there was always going to be a steep drop in payouts.

2020 is in the rearview mirror now and the banks aren't shackled by APRA any longer. What does the future hold for ASX bank dividends?

CBA gives us a dividend crystal ball

Well, we got a much-needed glimpse at the crystal ball this morning.

Commonwealth Bank reported its half-year earnings for the 6 months to 31 December 2020 earlier today, and it made for some interesting reading.

CBA did report $4.88 billion in net profits after tax. That was a ~20% drop compared to the previous period.

It also announced an interim dividend of $1.50 per share, fully franked. That metric represents a payout ratio of 67% of earnings.

First things first, an annualised dividend of $1.50 per share ($3 a year) would represent a forward dividend yield of 3.48% on the current CBA share price of $86.12 (at the time of writing). If you include full franking credits, that grosses-up to 4.98%. Sure, that's not quite what investors were used to pre-2020. But it's certainly better than what you could get form a CommBank term deposit right now.

What does the future hold?

However, CommBank CEO Matt Comyn also made some telling remarks in the report:

Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of recovery. We are prepared for a range of scenarios and have taken a careful approach to provisioning.

That probably explains why CBA is sticking with a payout ratio of 67% and not rushing to get back to paying out 80-90% of earnings right away. But it is still a somewhat promising sign. According to reporting in the Australian Financial Review (AFR) last month, we are likely to see similar results from the other banks in terms of dividends this year since CBA will likely 'set the tone' for the other banks. 

Let's model a scenario for a minute. Say everything goes CBA (and the Australian economy's) way in 2021 and CBA is confident enough to lift its payout ratio to 80% of its earnings in 2022 and it delivered the same results as it did this morning next year. That would mean CBA would be paying an interim dividend of roughly $1.80 a share. That would mean that CBA shares would have an annualised dividend yield of 4.18% (or 5.97% grossed-up). That's starting to look like the bank dividends of old.

Of course, I am not saying that is likely to happen. But it's a worthy thought experiment nonetheless.

So we can probably say that if the Australian economy continues to recover, ASX bank dividends will likely follow suit. However, the opposite is also true. If things go south again for the economy for whatever reason, so likely will banking dividends.

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Bank Shares

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »

Bank building with the word bank on it.
Bank Shares

The biggest buyers and sellers of ASX 200 bank stocks revealed

Macquarie breaks down who’s been buying and who’s been selling the ASX 200 bank stocks.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »