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Commonwealth Bank of Australia's (ASX:CBA) Upcoming Dividend Will Be Larger Than Last Year's

Commonwealth Bank of Australia's (ASX:CBA) periodic dividend will be increasing on the 30th of March to A$2.10, with investors receiving 20% more than last year's A$1.75. Although the dividend is now higher, the yield is only 3.8%, which is below the industry average.

View our latest analysis for Commonwealth Bank of Australia

Commonwealth Bank of Australia's Dividend Forecasted To Be Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Commonwealth Bank of Australia has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 70%, which means that Commonwealth Bank of Australia would be able to pay its last dividend without pressure on the balance sheet.

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EPS is forecast to rise by 9.0% over the next 3 years. The future payout ratio over that same time horizon is estimated by analysts to be 77% which is a bit high but can definitely be sustainable.

historic-dividend
historic-dividend

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$3.34 in 2013, and the most recent fiscal year payment was A$3.85. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, Commonwealth Bank of Australia's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Slow growth and a high payout ratio could mean that Commonwealth Bank of Australia has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Commonwealth Bank of Australia (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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