Could the Commonwealth Bank of Australia (ASX: CBA) share price be a buy for the dividend?
What has the CBA share price been doing recently?
Just over a year ago, the CBA share price was above $90 in mid-February 2020. It then plunged 40% to the bottom of the COVID-19 crash when it seemed like there were going to be very large economic repercussions because of all the impacts.
But then central banks across the world stepped in to provide support, whilst the Australian federal government announced support such as jobkeeper and increased jobseeker payments.
Between 23 March 2020 and the end of October 2020, the CBA share price went up 27%.
The good news of the efficacy, or effectiveness, of the COVID-19 vaccines was then announced in November 2020. Since the start of November, the CBA share price has risen another 23%.
The CBA share price has risen so much that it's almost back to its pre-COVID-19 highs.
Has the profit recovered as well?
CBA recently reported its FY21 half-year result where the bank said that disciplined execution delivered strong outcomes with market share gains in its core businesses, increased provisioning and a significant capital surplus.
Statutory net profit of $4.88 billion represented a decline of 20.8% compared to the first half of FY20. However, cash net profit only fell by 10.8% to $3.89 million.
The major bank said that the low interest rate world we're living in is impacting profit. It reported a 10 basis point decline of the net interest margin (NIM) to 2.01% because of higher levels of deposits.
CBA's significant capital surplus was shown with an increase to its common equity tier 1 (CET1) capital ratio of 12.6%, up 90 basis points year on year.
The CEO of CBA, Matt Comyn, said:
This position of strength means we are uniquely placed to respond to the rapidly changing operating context while continuing to support our customers, contribute meaningfully to our communities and deliver business performance.
We have refreshed our strategic priorities to build on our strong foundations and position us for the future. This is an evolutionary change to enable the bank to focus on the new challenges and opportunities ahead.
However, Mr Comyn also said that there are several health and economic risks that could hurt the speed of the recovery, but the bank is prepared for this.
What about the CBA dividend?
CBA's board decided that a dividend payout ratio of around two thirds of cash profit would be appropriate.
It decided to pay a fully franked dividend of $1.50 per share, up 53% on the second half of FY20. However, this still represented a cut of 25% year on year.
This means that the last twelve months of dividends amounts to a grossed-up dividend yield of 4.2% at the current CBA share price.
Broker Macquarie Group Ltd (ASX: MQG) said that the dividend wasn't as big as it thought it would be. However, the broker thinks the final FY21 dividend could be around $2 per share because of CBA's comments about the dividend payout ratio expected to be somewhere between 70% to 80% for FY21. Macquarie has a share price target of $80 for CBA, which means the broker thinks CBA shares will fall by mid-single digits over the next year – it thinks it's a sell.
However, UBS has one of the most positive expectations of CBA and its dividend, compared to other brokers. The broker likes how much capital the bank has and that it's benefiting from the resurgent Australian economy.
UBS has a CBA share price target of $90 and it expects a dividend of $3.60 for the full year, equating to a grossed-up dividend yield of 6%.
