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3 ways I’d invest my Commonwealth Bank (ASX:CBA) dividends

Commonwealth Bank of Australia (ASX: CBA) paid its $1.75 per share interim dividend on Wednesday.

If you own $10,000 in CBA shares, you can expect a $175 deposit into your broking account.

This year’s CBA dividend is a 17% improvement from the same period one year ago as CBA benefits from unwinding loan provisions made when COVID-19 hit.

The dividend comes on top of a $2 billion buyback currently being undertaken.

Here is where I would invest my CBA dividends.

1. Dividend reinvestment plan

CBA shareholders are able to participate in the bank’s dividend reinvestment plan (DRP).

Instead of receiving the dividend as cash, you can opt to receive more CBA shares equal to the total dividend amount.

Investors save on fees, as there is no brokerage paid on the DRP.

Often the dividend payment does not equal the exact cost of new shares. In that case, CBA will allocate the maximum amount of shares and keep the residual amount to be applied to future DRPs.

The DRP is suitable for investors who want to increase their exposure to CBA. Or for those who simply prefer the profits to be reinvested back into the business.

2. Buy the index

Most investors who received CBA dividends will already have significant exposure to the bank.

If you don’t want to participate in the DRP, but want to achieve diversified exposure, investors can purchase an ETF such as the Ishares Core S&P/ASX 200 ETF (ASX: IOZ).

IOZ holds the 200 largest companies on the Australia Securities Exchange (ASX).

CBA is the second-largest index weighing at 8.1%, so investors will retain a decent exposure to the bank.

But it also provides decent exposure to the big miners such as BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).

3. Diversify into new companies

Instead of simply buying the index, CBA dividend investors may look to diversify other ASX dividend companies.

Endeavour Group Ltd (ASX: EDV) is one candidate. It houses liquor retailers (Dan Murphy’s, BWS) in addition to hotel and pub outlets.

Bunnings and Officeworks owner Wesfarmers Ltd (ASX: WES) is another great dividend share.

Both companies offer dividend yields above 3% with defensive and reliable earnings.

Moreover, the two companies have 100% franked shares paid semi-annually.

If investors are feeling exotic, they could opt for 3 ASX tech shares to buy and hold for 10 years.

Either way, there are several ASX shares CBA shareholders may look to diversify into.

It will depend on if investors are looking for growth and income, and how much risk they are willing to take on.

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At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.
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