The Commonwealth Bank of Australia (ASX: CBA) share price is under pressure on Wednesday.
In morning trade, the banking giant's shares are down 3.5% to $156.59.
This compares to a 0.65% decline by the ASX 200 index.
Why is the CBA share price sinking?
There are a couple of reasons for today's share price decline.
The first is weakness in the banking sector caused by the release of a disappointing quarterly update from National Australia Bank Ltd (ASX: NAB). Its shares are down 7% at the time of writing.
Investors may be questioning bank valuations after updates this month largely underwhelmed.
The other reason for the CBA share price weakness is that today is the ex-dividend date for its latest payout.
The CBA dividend
Last week, Australia's largest bank released its half year results and reported a 3% increase in operating income to $14.1 billion. This was thanks to volume growth in its core businesses and a small increase in the bank's net interest margin (NIM) to 2.08%.
The latter reflects the effects of competitive pressure on deposits and lending pricing, which were offset by higher earnings on capital hedges and the replicating portfolio.
On the bottom line, the big four bank recorded a 2% rise in cash net profit after tax to $5.13 billion and a 2.3% lift in cash earnings per share to 307 cents.
In light of this profit growth, the bank's board decided to reward its shareholders with a fully franked interim dividend of $2.25 per share. This represents a 73.3% payout ratio and is a 4.6% increase on the prior corresponding period.
Commenting on the dividend, CBA's CEO Matt Comyn said:
We aim to provide strength and stability through economic cycles, while maintaining the capacity to deal with macroeconomic and geopolitical uncertainties. Millions of Australians continue to benefit from our focus on strong and sustainable returns, and we have declared an interim dividend of $2.25 per share, fully franked."
Ex-dividend date
CBA shares are trading ex-dividend for this interim dividend this morning.
This means that the rights to the dividend are now locked in and if you were to buy CBA shares during today's session, you would not be entitled to receive it on pay day.
Instead, the seller of the share will receive the payment even though they no longer own them.
In light of this, the CBA share price has dropped to reflect this. After all, you don't want to pay for something you won't receive.
Eligible shareholders can now look forward to receiving this payout next month on 28 March.
