Is Commonwealth Bank of Australia (ASX: CBA) a buy today?
It's a question on the minds of thousands of investors around Australia, and a valid one at that.
The shares have fallen almost 14% since the beginning of the month while they're down a whopping 22% since March this year. As it stands, they're down 1.7% today and changing hands for just $75.16 per share.
With that in mind, the shares are now offering a significantly higher dividend yield than they were last year. In fact, the fully franked yield has ballooned out to 5.6%.
When grossed up for tax credits, that's an 8% dividend yield which certainly beats the alternative 2% to 3% on offer from most term deposits and savings accounts.
Before investors get too carried away however, they need to remember that there is more to investing than simply looking at the dividend yield on offer.
Other factors, including the underlying share price, the headwinds facing the business or industry and the company's ability to maintain or grow its current dividend payments, also need to be taken into account.
Traditionally, investors have (rightfully) looked at the Big Four banks as 'safe' and 'reliable' dividend payers, but now, that reputation does have to be questioned.
Here at The Motley Fool, we've long argued that the banks' shares have become overpriced. We may have looked a little silly at times as their shares continued to rise to new heights, but it seems the market is now also recognising that there are risks – big risks.
This was highlighted by the recent $16 billion in capital raised between the Big Four, with Commonwealth Bank and National Australia Bank Ltd. (ASX: NAB) accounting for roughly $10.5 billion of that.
Worse yet, experts believe another $25 billion may need to be raised in the near future, which will further dilute shareholder ownership and ensure those dividend payments are spread over more shares.
Although Commonwealth Bank has generated enormous returns in the past, there is no guarantee that it will continue to do so from its current price tag. In other words, any capital losses from a falling share price could more than offset potential gains from the dividend stream.
Despite its recent tumble, I believe investors could do far better over the long term by looking elsewhere.
