Commonwealth Bank of Australia (ASX: CBA) is known as one of the best dividend shares on the ASX, is the CBA share price a buy?
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
Is The CBA Share Price A Buy For Dividends?
CBA has been one of the best dividend shares since the GFC in terms of the dividends paid to shareholders in over the past decade.
A decade ago it paid an annual fully franked dividend of $2.66 per share, at a high yield. The current level of dividends amounts to $4.31 per share, fully franked.
The current dividends amount to a dividend yield of 8.7% when you include the franking credits. Except for a one-off cut during the GFC the CBA dividend has steadily grown over the past 20 years. Long term holders have done very well.
The strength of the Australian economy and housing market over the last two decades has been a key reason for CBA’s own relative performance. As long as profit keeps growing then the dividend can be maintained or grown.
In the recent half year result to 31 December 2018 CBA revealed cash net profit after tax growth of 1.7% to $4.68 billion and cash earnings per share of 265.2 cents, which was up 0.9 cents. This allowed the dividend to be maintained at $2 per share.
Based on the above figures, CBA had a cash payout ratio of 75.4%, which is quite healthy. CBA also reported that its CET1 ratio was 10.8%, above the 10.5% required by APRA to be unquestionably strong.
However, the biggest risk to CBA’s dividend at the moment is the fact that house prices in Sydney and Melbourne are falling by more than 1% a month. This creates a direct risk of property borrowers getting into arrears and an indirect risk that the declining housing market affects the general economy.
At the current share price CBA could be a fairly good option for income as long as Australia doesn’t have a GFC-like recession. But, with household debt ratios so high it’s hard to see growth of the previous decade coming back. I would rather consider buying CBA shares with a yield above 10% (including franking credits).
I think there are better ASX dividend shares out there for more reliable income such as the shares mentioned in the free report below.
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