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Should you buy Commonwealth Bank of Australia shares today?

Australia’s biggest bank, the Commonwealth Bank of Australia (ASX: CBA), has shed almost 16% of its value this year and sits close to its multi-year low. This is, for me, a great opportunity to buy shares.

I believe there have been a couple of things holding the banks down. Questions over their abilities to continue growing their dividends have been a major source of concern for investors, with a great deal of focus being placed on Australia and New Zealand Banking Group (ASX: ANZ) in this regard.

I’m yet to be convinced with ANZ, but I believe the Commonwealth Bank and Westpac Banking Corp (ASX: WBC) will be able to maintain their respective dividend policies. Which is great news for investors with the Commonwealth Bank paying out an estimated 420 cents per share dividend in 2016.

Shareholders should take heart from the fact that the CEO of the Commonwealth Bank, Ian Narev, hit back recently at predictions it may need to make a cut to its dividend. He expects the bank will be able to maintain its dividend policy of paying out 70%-80% of earnings, despite the tougher capital rules that have been introduced.

Another cause for concern in the banking industry has been the talk of a housing bubble. Should there be a bubble, there is always a danger of it popping, causing a collapse in house prices. The banks have significant exposure to the residential property market, which could see a surge in levels of bad debt.

Much like the dividend cut, Ian Narev has refuted these claims and has advised that the Commonwealth Bank is more than prepared for any bubble that could occur. The Australian reported that the bank’s lending practices are the strongest in the world, with scenario planning for downturns being built into the decision-making process.

I see this as positive news considering the Commonwealth Bank has the biggest home lending book, and would perhaps be the most affected bank in the event of an Australian housing bubble.

Foolish takeaway

So is now a good time to buy the Commonwealth Bank? I think it is. I feel its shares have dropped so far now that they may begin to retrace some of these losses. The potential share price gains, together with the market-beating dividend, makes this an easy investment choice in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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