CBA (ASX: CBA) share price drops, is it a buy for dividends?

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for dividends after reporting its FY21 half-year result?

What happened with the CBA HY21 dividend?

CBA’s board declared an FY21 interim dividend of $1.50 per share. That represents a cut of 25% from a year ago, but it’s 53% higher than the final FY20 dividend.

The big bank said that this represents a cash payout ratio of 67%, below the board’s target payout ratio.

CBA certainly has the balance sheet to pay a large dividend, perhaps even bigger than what it has declared.

Its common equity tier 1 (CET) capital ratio was 12.6% at 31 December 2020. This was an increase of 100 basis points (1.00%) compared to 30 June 2020 and an increase of 90 basis points (0.90%) compared to 31 December 2019.

CBA said that strong organic capital generation and ongoing benefits of divestments supported higher capital levels, which remain well above APRA’s ‘unquestionably strong’ benchmark of 10.5%.

What to think about the dividend

CBA could have paid a bigger dividend if it wanted to, so perhaps the CBA leadership are still being a little bit cautious when it comes to economy and making sure the bank is strong throughout this period.

The dividend was probably a little bit lighter than many in the market was expecting, though the final FY21 dividend could be larger if the bank continues to do well.

If CBA were to pay another $1.50 per share dividend at the end of the year, then it would have a fully franked dividend yield of 3.5%, or 5% including the franking credits.

To me, that’s not a hugely appealing yield, particularly when you consider how much the CBA share price has recovered – it’s actually higher than it was a year ago.

Aside from a recovery of the dividend back to a normalised level, I don’t think the CBA dividend offers much growth potential over the longer term.

I believe there are plenty of other ASX dividend shares that would be better ideas like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Magellan Financial Group Ltd (ASX: MFG).

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At the time of publishing, Jaz owns shares of WHSP

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