If you’ve come looking for ASX shares with high dividend yields you’ve come to the right place. Here’s why it may be time to put Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Macquarie Group Ltd (ASX: MQG) shares on your watchlist.

Are ASX Income Shares Worth The Risk?

One of the best things about investing in the Australian share market is the ability to generate long-term dividend income. Sometimes, these companies pay their dividends half-yearly or every six months (known as the interim and final dividends), or just one per year.

What makes Australian dividends so special is that Aussie companies often pay dividends with something called ‘franking credits’. Franking credits are like tax credits stored at the tax office (ATO) until you file your tax returns and claim them. The following Rask Finance video explains franking credits in more detail.

Here are three ASX income shares — all banks — to put on your watchlist today…

1. Commonwealth Bank of Australia – trailing dividend yield: ~5%

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.

One thing to watch with CBA is its ongoing investment in technology and efficiency. Amongst Australia’s Big Four retail banks CBA is the one which has invested most for the future by creating tools, apps and solutions, mostly for individuals but also for businesses. On the risk side of things, shareholders should be keeping a close watch on the bank’s bad debt expense, which is an important measure deducted directly from it’s income statement.

2. National Australia Bank – trailing dividend yield: ~6%

NAB is also one of the four largest banks in Australia in terms of market capitalisation, profits and customers. However, as of 2019, NAB was Australia’s largest lender to businesses. The bank also has operations in wealth management and residential lending undertaken via its own name in addition to its online-only subsidiary, Ubank.

In terms of performance, NAB has been the laggard amongst the Big Four since the Global Financial Crisis (GFC) of 2008/2009. This poor relative performance — both in terms of share price growth and dividend increases — can partly be explained by its UK banking division, Clydesdale & Yorkshire Bank (ASX: CYB).

Over the past five years, NAB has done a lot to rid itself of its poorly performing overseas businesses, wealth management, and most of its insurance operation. Nowadays the bank is a leaner retail and business lending bank. However, as with CBA, investors should be aware of the risks associated with NAB’s bad debts and monitor these closely before buying shares.

3. Macquarie Group – trailing dividend yield: ~4%

Macquarie Group is Australia’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Unlike a traditional ‘retail’ bank, like most investment banks Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations. As of 2019, Macquarie had reported a profit for 49 years in a row.

Indeed, if you’re looking for a bank that’s more oriented towards capital growth — with a lesser dividend yield — I think Macquarie is probably more appealing than the other two banks above. With the majority of its revenue earned overseas Macquarie shares are also a handy way to get international exposure in an ASX-focused portfolio. One thing to be mindful of, however, is the intense cyclicality to its profit and dividends.

Macquarie is not only a bank, which lends money to individuals and businesses and depends on the credit cycle for short-term growth, it also earns an important amount of its profit from more market-sensitive business units. These business units tend to be more dependent upon the ebbs and flows of financial markets than other banks or companies. Therefore, make sure you’re buying shares before their cyclically-adjusted fair value.

Buy, Hold Or Sell?

In my mind, there are a few too many risks in buying ASX bank shares today.

For example, a weak Aussie economy, technological disruption, slower credit growth and high house prices make me think that Australian banks are going to enter a new period of much slower growth. For my money, I’d rather invest in a diversified ETF over an individual bank share unless I was convinced it had market-beating potential.

If you forced me to pick one of these three shares it would probably be CBA but I’d rather go for the shares in the report below.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.