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CBA share price: 3 things to consider before FY20 results

We look at when the Commonwealth Bank is set to report its FY20 results, how analysts currently rate the stock, and the dividend outlook.

When will the bank report its FY20 results

The Commonwealth Bank of Australia (CBA) is set to report its full-year (FY20) results next Wednesday, 12 August. The bank is also set to reveal details of its final dividend on that date.

CBA share price: the analyst view

Unsurprisingly, the sell-side has become increasingly pessimistic on Australia’s largest bank over the last month, assigning the stock an Underweight rating on average, according to the Wall Street Journal. This comes as the entire sector faces a myriad of headwinds, including historically low interest rates, dividend restrictions imposed by the Australian Prudential Regulation Authority (APRA) and significant loan loss provisions stemming from the coronavirus pandemic.

From a price perspective, the average analyst price target on CBA currently sits at $66.71 per share – suggesting further downside potential from current price levels, also according to the Wall Street Journal.

Will CBA pay a final dividend?

With many investors historically buying the banks for their yield, investors – prospective or current – are likely eager to see whether the bank will pay a final dividend, and if so, how much it will be.

In March, CBA – buoyed by its strong capital position – paid out a $3.5 billion dividend, representing a payout of $2.00 per share.

This decision from the bank has itself created a ‘problem’ in light of APRA’s recent regulatory guidance which stated that authorised deposit taking institution’s payout ratios should not exceed 50% of earnings.

Elucidating that issue and as Citi put it:

‘The question for interpretation here remains the impact of the interim dividends paid out by CBA and BEN. These were paid in CY20, but on earnings that were generated in the 2019 calendar year. Dividends declared in February 2020 would leave BEN and CBA largely at their 50% cap for the rest of the year.’

Overall, Citi analysts recently noted that consensus dividend expectations remain volatile – with analysts’ expectations of Commonwealth’s Final dividend ranging from between 20-120 cents per share. For reference, the investment bank expects CBA to pay a final dividend of 50 cents per share – bringing the bank’s full-year dividend to 250 cents per share – representing a 48% payout ratio, a shade under APRA’s regulatory guidance. By FY22, Citi analysts see the potential of bank dividend payout ratios across the board returning to around 75%.

The waiting game

With share prices lagging across the sector and dividends facing regulatory scrutiny, yield hungry investors are likely keen to see things ‘normalise’. According to Morgan Stanley, while dividends across the sector are set to remain soft in 2020, they are set to return to higher levels in 2021.

‘Based on our forecasts, the average yield is ~3.2% for this year and ~5.5% for next year,’ Morgan Stanley analysts said in a note.

CBA closed Tuesday's session at $71.50, up over 30% from the lows it recorded in March.

How to trade bank stocks, long or short

Where do you stand heading into CBA’s FY20 results: are you bullish or bearish on the banks? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) CBA using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘CBA’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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