Owning Commonwealth Bank of Australia (ASX: CBA) shares is usually beneficial in terms of the dividend income that investors get each year.
A dividend isn't necessarily the most important thing. I think making a profit and growing profit over time is the most important – a dividend can just be the end product of a good business performance.
There has been a lot of change in the banking industry over the past four years. The RBA interest rate went down to almost 0% and now it's gone to 4.35%. That's lower than where it was in 2011 but still represents a very significant increase compared to two years ago.
Who knows where the interest rate will be in five years from now? But, the dividends have continued to flow, despite the uncertainties.
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How big could the CBA dividend payout be in 2024?
A dividend payment is decided by how much profit the business makes and the dividend payout ratio that the board decide on. A generous payout ratio means shareholders get a good cash return, but it's also healthy for a business to retain some profit to re-invest for future growth and to strengthen the business.
On Commsec, which has independent numbers, the ASX bank share is projected to generate earnings per share (EPS) of $5.77 and pay a dividend per share of $4.50. That would be a dividend payout ratio of 80% and a grossed-up dividend yield of 5.8%.
UBS thinks CBA could generate EPS of $5.59 and pay a grossed-up dividend yield of 6.2%.
How likely is a big payout next year?
The business is facing a few headwinds, such as heightened competition and the possibility of higher arrears amid higher interest rates.
However, UBS did say (after assessing the FY24 first quarter) that asset (loan) quality is "holding up well, supporting cash earnings".
If earnings hold up well, then the dividend could remain solid, though a decline in profit may encourage the board to maintain the dividend rather than grow it.
For investors looking for big ASX bank share dividends, the other big four banks may offer stronger yields because they trade on a lower price/earnings (P/E) ratio compared to CBA.
But, CBA's quality may mean its loan book and overall performance could perform better than names like Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ).
After the recent strong run of the CBA share price, it may be wise to be patient before diving in right now with the major ASX bank share.
