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Is Commonwealth Bank of Australia’s 5% dividend about to be slashed?

Commonwealth Bank of Australia (ASX:CBA) shares offer a meaty 5% fully franked dividend yield.

What’s more, if you bought shares in Australia’s largest bank almost anytime over the past 20 years, you would be receiving dividend yields far greater than 5%.

The following chart shows Commbank’s half-yearly dividend payments since it first went public in the early 90’s. As can be seen it has been a good ride for shareholders.

Source: Commbank.com.au

Source: Commbank.com.au

 

Is Commonwealth Bank of Australia’s 5% dividend about to be cut?

Despite its success some investors are worried the bank will be forced to cut its dividend. Investors’ latest batch of concerns stem from news that all banks will be required to hold more ‘safe’ capital to shore up their balance sheets. To build that capital analysts believe they may have to cut dividend payments.

The required capital levels come from the Basel Committee on Banking Supervision. The Committee was expected to up the ante on capital levels, forcing banks to increase their safety buffer, sometime this year. But, so far, nothing has come to light.

Nevertheless, it is important to note that Commonwealth Bank has a strong capital position, at least relatively speaking. And at the end of September 2016, the bank had a CET1 ratio of 9.4%. Considering it had just paid a dividend and upped its risk-weighted assets, that’s quite strong.

Consensus analyst forecasts suggest Commonwealth Bank’s dividend may slightly increase in the year ahead, which is more than can be said for Westpac Banking Corp’s (ASX: WBC) dividend. However, if the Basel Committee increases the capital requirements that may change quickly.

Foolish Takeaway

Currently, Commbank shares look set to continue shooting off a stable dividend stream to investors. I am not willing to bet the dividends will grow at the same pace they have in recent years but until we know more about future Basel Committee changes I am forecasting more of the same. And in any case, Commbank will only cut the dividend if management think it is in the best interests of shareholders.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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