What can Commonwealth Bank (ASX:CBA) shareholders expect from buybacks in 2021?

What kinds of dividends or buybacks will CBA shareholders receive next month?

| More on:
CBA share price represented by branch welcome sign

Image Source: Commonwealth Bank

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

Commonwealth Bank of Australia (ASX: CBA) shares have had an interesting 2021 so far. After breaching the $100 a share mark for the first time ever back in May, CBA shares have treaded water ever since, including at today's share price of $98.92 (at the time of writing).

But even so, the CBA share price remains up a substantial 18% year to date, and an even more pleasing 36.5% over the past 12 months.

A large force driving these gains may have been an increase in speculation that CBA will spend 2021 ramping up both dividends and share buyback programs for the benefit of its shareholders. It's no secret that all of the ASX banks have surpluses of cash left over from last year. At the urging of the government, the ASX banks spent 2020 sandbagging their balance sheets and battening down the hatches for a coronavirus-induced recession.

This recession turned out to be far less severe than the 'worst-case scenario' the banks prepared for. Thus, all banks are very well capitalised at the current time, and, as a result, are primed to return cash to shareholders. Or at least, that's how the theory goes.

Are buybacks coming?

Until very recently, this was looking promising too. Last month, the Fool covered some analysts predictions that CBA shares would "launch an off-market share buyback with a large franking component".

Share buybacks are when a company 'buys back' its own shares from the market. This increases the entitlement of all existing shareholders to the company's profits and dividends, because there are fewer shares to split said profits and dividends between. It also usually results in a share price increase simply due to less supply of shares. It's an easy (and tax effective) way to boost shareholder returns.

So that's what CBA shareholders were probably hoping was in store for them.

What will CBA shares give back in 2021?

Alas, this may no longer be the case. According to a report in the Australian Financial Review (AFR) today, some commentators are beginning to worry the NSW lockdown might be putting these buybacks at risk. The report quotes including Morgan Stanley analyst Richard Wiles on this matter. Mr Wiles stated the following on CBA"s buybacks:

The growing risk of an extended Sydney lockdown increases the probability that CBA downsizes or delays the announcement of a buyback at its FY21 result on August 11.

The report states the following:

 Wiles' base case is still for a $5 billion buyback, which would take CBA's capital ratio to 12 per cent. Wiles expects the lockdowns could lead NAB and Westpac to decide to keep their buyback powder dry until May next year, rather than announcing them with their full-year results in October.

We shall have to wait until CBA reports its FY2021 full-year earnings next month to know for sure. But it seems the chances of shareholders getting a river of dividends and buybacks are certainly looking a lot drier than they were a month ago.

Motley Fool contributor Sebastian Bowen 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 no position in any of the stocks mentioned. 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

Three business people stand on platforms in the desert and look out through telescopes.
Bank Shares

Here's the earnings forecast out to 2029 for Bank of Queensland shares

How much profit could the bank make in future years?

Read more »

A woman faces the camera with her lip raised up to the side in total confusion.
Bank Shares

Why is the CBA share price being hit so hard today?

Has CBA's luck finally run out?

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Bank Shares

The NAB share price is at a 12-year high, these insiders are still buying

This bank is still receiving a vote of confidence after a strong run.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Bank Shares

Are Westpac shares a good buy at close to 52-week highs?

Should investors be attracted to this major bank?

Read more »

Woman and man calculating a dividend yield.
Bank Shares

How big could the NAB shares return be in FY25?

NAB’s recent return has been extraordinary. What could happen next?

Read more »

Australian dollar $100 notes fall out of the sky, indicaticating a windfall from ASX bank shares
Bank Shares

CBA is among the biggest dividend-payers in the world. What's next?

Can the bank continue to rank at the top end of global dividend-payers?

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Bank Shares

Do ANZ shares present better value than other Big Four options?

Here's my take on whether ANZ is a good value investment right now.

Read more »

Happy man at an ATM.
Bank Shares

These ASX bank shares are cashing in on new highs today

Bank stocks are still in vogue.

Read more »