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Is the Commonwealth Bank of Australia share price a buy?

The Commonwealth Bank of Australia (ASX: CBA) share price is currently $74.40, almost the lowest it has been over the past year. Does this make it a buy?

The biggest reason an investor might be interested in Commonwealth Bank of Australia is its ‘blue-chipness’ and its dividend.

It has been Australia’s largest business for a number of years and will likely continue to be so as long as there isn’t another GFC in the coming years. If investors are seeking a ‘blue chip’ to reduce the likelihood of the business going bust, then Commonwealth Bank is one of the best options.

Commonwealth Bank’s current grossed-up dividend yield is 8.26%, which comfortably beats the rate you can get from one of their bank accounts. The bank seems committed to increasing the dividend, if it can. In its half-year report for the six months to 31 December 2017 it increased the interim dividend from 199 cents to 200 cents.

Alongside that dividend increase it reported that statutory net profit after tax (NPAT) increased by 1.2% but cash NPAT decreased by 1.9%. The interest rate increases implemented by the bank on fixed interest loan holders helped boost the net interest margin by six basis points to 2.16%.

The Aussie bank also increased its capital ratios with the APRA CET 1 capital ratio increasing by 50 basis points to 10.4% and the international CET 1 capital ratio increasing by 90 basis points to 16.3%.

Foolish takeaway

Even with all of the scandals, Commonwealth Bank would be my long-term pick of the big four banks, as it offers people the best banking products and keeps increasing the dividend.

However, if I wanted to choose a share to beat the market I wouldn’t choose Commonwealth Bank at the current price, it would need to drop to the low $60s or lower for me to start considering it.

These top stocks would be much better choices than Commonwealth Bank to generate market-beating returns.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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