What can Commonwealth Bank (ASX:CBA) shareholders expect from buybacks in 2021?

What kinds of dividends or buybacks will CBA shareholders receive next month?
The post What can Commonwealth Bank (ASX:CBA) shareholders expect from buybacks in 2021? appeared first on The Motley Fool Australia. –

Commonwealth Bank of Australia (ASX: CBA) shares have had an interesting 2021 so far. After breaching the $100 a share mark for the first time ever back in May, CBA shares have treaded water ever since, including at today’s share price of $98.92 (at the time of writing).

But even so, the CBA share price remains up a substantial 18% year to date, and an even more pleasing 36.5% over the past 12 months.

A large force driving these gains may have been an increase in speculation that CBA will spend 2021 ramping up both dividends and share buyback programs for the benefit of its shareholders. It’s no secret that all of the ASX banks have surpluses of cash left over from last year. At the urging of the government, the ASX banks spent 2020 sandbagging their balance sheets and battening down the hatches for a coronavirus-induced recession.

This recession turned out to be far less severe than the ‘worst-case scenario’ the banks prepared for. Thus, all banks are very well capitalised at the current time, and, as a result, are primed to return cash to shareholders. Or at least, that’s how the theory goes.

Are buybacks coming?

Until very recently, this was looking promising too. Last month, the Fool covered some analysts predictions that CBA shares would “launch an off-market share buyback with a large franking component”.

Share buybacks are when a company ‘buys back’ its own shares from the market. This increases the entitlement of all existing shareholders to the company’s profits and dividends, because there are fewer shares to split said profits and dividends between. It also usually results in a share price increase simply due to less supply of shares. It’s an easy (and tax effective) way to boost shareholder returns.

So that’s what CBA shareholders were probably hoping was in store for them.

What will CBA shares give back in 2021?

Alas, this may no longer be the case. According to a report in the Australian Financial Review (AFR) today, some commentators are beginning to worry the NSW lockdown might be putting these buybacks at risk. The report quotes including Morgan Stanley analyst Richard Wiles on this matter. Mr Wiles stated the following on CBA”s buybacks:

The growing risk of an extended Sydney lockdown increases the probability that CBA downsizes or delays the announcement of a buyback at its FY21 result on August 11.

The report states the following:

 Wiles’ base case is still for a $5 billion buyback, which would take CBA’s capital ratio to 12 per cent. Wiles expects the lockdowns could lead NAB and Westpac to decide to keep their buyback powder dry until May next year, rather than announcing them with their full-year results in October.

We shall have to wait until CBA reports its FY2021 full-year earnings next month to know for sure. But it seems the chances of shareholders getting a river of dividends and buybacks are certainly looking a lot drier than they were a month ago.

The post What can Commonwealth Bank (ASX:CBA) shareholders expect from buybacks in 2021? appeared first on The Motley Fool Australia.

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More reading

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Why the Commonwealth Bank (ASX:CBA) share price is up 12% in 3 months
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CBA (ASX:CBA) share price lags big banks as requests for deferrals surge

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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