a $5.5 billion buyback, $3.5 billion in dividends and several billions of dollars of surplus capital, as a show of financial strength, despite looming uncertainties linked to COVID-19. According to Jefferies analyst Brian Johnson, CBA will discharge about $2.3 billion in franking credits, in order to deliver an off-market buyback offer which would consist of small capital component, along with a supercharged, fully-franked dividend.
Sitting on a sector-leading capital war chest, experts are of the view that CBA’s highly anticipated buyback could be just the start, with one analyst saying the banking giant has the potential to fuel not just one buyback but two. “We currently have $5.7 billion [in buybacks] in our forecasts,” Victor German from the Macquarie Group said. “We also have an additional $3.7 billion on market in FY23 … so in total we think CBA will return $9 billion to $10 billion over the next few years.”
At the moment, trading on a price-to-earnings that is more than 20 times of its earnings, the Sydney-based banking giant is one of the most expensive in the world. Meanwhile, shareholders are eagerly waiting on a substantial boost in dividend, after regulators forced banks to cap dividends at 50 per cent of earnings, with the aim of providing a buffer against coronavirus-induced losses. At the time, CBA expanded its dividend pay-out ratio to the maximum rate allowed, which stood at 49.95 per cent of earnings. Now, the bank is expected to reach its full-year target ratio between 70 and 80 per cent of its earnings, which would enable it to pay a second half dividend of $2 a share.
