Dividend Policy

Dividend Policy

  1. Dividend payment for the Commonwealth Bank of Australia (CBA) over the last three years

(The given dividend represent a full year dividend paid by the bank = interim dividend + the end of the year dividend) (CBA, 2015).

 Year 2012 2013 2014
Dividend ($) 3.61 3.83 4.16
  1. Dividend pay-out
 Year 2012 2013 2014
Total dividend (AUD “000”) 5332160 5896332 6516405
net income (AUD “0000) 7,016,000 7,618,000 8,631,000
Pay-out ratio 76.00% 77.40% 75.50%

Dividend Yield

 Year 2012 2013 2014
Dividend per share 3.61 3.83 4.16
Price per share 56.85 72.85 80.23
Dividend yield 0.064 0.053 0.052

 

  1. Dividend payout policy followed by the Commonwealth Bank of Australia (CBA) The Commonwealth Bank of Australia (CBA) follows the low regular and extra dividend policy. Under this dividend policy, the company pays a low dividend, which is supplemented, by the additional dividend for higher earnings. This policy is usually taken to avoid giving the shareholders false hopes. The Commonwealth Bank of Australia (CBA) has established a low regular dividend, but the company raises the level of the regular dividend due to the increase in earnings over the three years. Before the year 2012, Commonwealth Bank of Australia (CBA) has been paying a low regular dividend of AUD 1.2, on top of which it paid varying extra amount to cater for the increase or decrease in the earnings. In the years 2012 through 2014, the company can be said to be a low regular dividend of AUD 3, plus extra revenue that caters for the increase in the company’s revenue (CBA, 2015).
  2. The dividend payout of the Commonwealth Bank of Australia, (CBA) provides a positive signal to the market. This is indicated by the increase in the share price of the company’s stock. The share price of the company increased from an average of AUD 56.85 in 2012 to an average of AUD 80.23 in 2013. This commensurate with the increase in dividend payout of AUD 3.61 in 2012 to AUD 4.16 in 2014. This indicates that the dividend policy coupled with the solid financial performance of the company increase the expectations of the investors. As such, the Commonwealth Bank of Australia (CBA) dividend payout policy provides a positive signal to the market (Davis, 2011).
  3. In 2014, the market price-earnings ratio was 16.6, which was similar to that of the Commonwealth Bank of Australia. In the same years the market earnings was 0.88 while that of the Commonwealth Bank of Australia (CBA) was 0.86, and the market price over the book ratio was 1.3 while that of the Commonwealth Bank of Australia (CBA) was 3.09 (CBA, 2015). The price earnings growth of the Commonwealth Bank of Australia (CBA) in 2014 was 2.86 while that of the market was 2.38 and that of the banking sector in Australia was 1.83 (Bollen, Skully & Wei, 2014). The company payout ratio was higher than the industrial payout ratio over the three years period. This indicates that the company performed well when compared to peer banks. The good performance of the Commonwealth Bank of Australia (CBA) can be attributed to the optimisation of productivity and revenue, capital efficiency, as well as the effective corporate culture. The company has established three main competitive advantages that not easily replicable (Saunders & Deeming, 2011). These advantages are strong balance sheet customer-focused corporate culture and application of the industrial leading technology in offering financial services.

References

Bollen, B., Skully, M. T., & Wei, X. (2014). Basel Capital Adequacy Agreements and Bank Risk: Some Australian Evidence. In 2014 Financial Markets & Corporate Governance Conference.

CBA (2015). Dividend. Retrieved ON 1st April from https://www.commbank.com.au/about-us/shareholders/shareholder-information/dividend.html

Davis, K. (2011). The Australian financial system in the 2000s: dodging the bullet. The Australian Economy in the 2000s. H. Gerard and J. Kearns. Sydney, Reserve Bank of Australia, Sydney, 301-348.

Saunders, P., & Deeming, C. (2011). The impact of the crisis on Australian social security policy in historical perspective. Social Policy & Administration,45(4), 371-388.

 

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