Is the CBA (ASX:CBA) share price a buy for the 6% dividend yield?

Is the CBA share price a buy for its dividends?

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Could the Commonwealth Bank of Australia (ASX: CBA) share price be a buy for its projected FY22 grossed-up dividend yield?

The big bank has seen a bit of volatility in recent months. It's up 18% over the last six months. However, it's actually down by 6% since 11 August 2021.

CBA has been experiencing an earnings recovery from COVID-19 impacts (like loan provisions) in 2021.

Indeed, FY21 saw statutory net profit after tax (NPAT) increase by almost 20% to $8.84 billion and cash net profit grow by 19.8% to $8.65 billion.

What about the dividend from the big bank? The FY21 annual dividend was $3.50, an increase of 17% from FY20. CBA's board decided to pay a final dividend of $2 per share.

The biggest piece of news was the off-market buy-back of up to $6 billion of CBA shares. One of the aims of the buy-back would be to elevate the CBA share price.

CBA Chair Catherine Livingstone said:

CBA's strong capital position and our progress on executing our strategy mean that we are well placed to continue to support our customers and manage ongoing uncertainties, while also returning a portion of surplus capital to shareholders. After careful consideration, your board has determined that the buy-back is the most efficient and value-enhancing strategy to distribute CBA's surplus capital and franking credits.

What dividend is CBA expected to pay in FY22?

Each financial analyst has different earnings expectations on the bank.

The broker Morgan Stanley reckons CBA is going to generate earnings per share (EPS) of $5.28 and pay an annual dividend of $4.02 per share in FY22.

Morgans, another broker, thinks that CBA will make EPS of $5.70 in FY22 and that the bank will pay a dividend of $4.28 per share.

Both of those estimates represent growth on CBA's FY21 numbers.

For FY22, Morgan Stanley thinks the current CBA share price offers a grossed-up dividend yield of 5.6%. The Morgans estimate puts the FY22 grossed-up dividend yield at 6%.

Is the CBA share price a buy for the dividend?

Both Morgans and Morgan Stanley think that CBA shares are actually a sell based on valuation grounds.

Morgan Stanley has a price target of $90 on CBA – suggesting the bank's shares could fall just over 10% over the next 12 months.

Morgans has a price target of just $80. That implies the CBA share price could drop by more than 20% over the next 12 months.

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