MENU

With its 9% yield, is the CBA share price a buy today?

The Commonwealth Bank of Australia (ASX: CBA) share price is currently offering investors a grossed-up yield of around 9%, is it a buy?

Australia’s biggest bank has seen its share price fall by 14% during 2018, boosting the potential dividend yield to almost double digits.

Commonwealth Bank has come under severe pressure for the issues highlighted during the Royal Commission. For Commonwealth Bank shareholders it is costing millions of dollars in remediation, not to mention the huge $700 million AUSTRAC penalty.

To fix some of the issues Commonwealth Bank has decided to sell its global asset management business, Colonial First State Global Asset Management, for $4.13 billion.

This is probably a good move in the short-term. It improves the CET1 ratio and brings it closer to the ‘unquestionably strong’ standard that APRA is after.

However, in the longer-term I’m not sure it’s a great thing. Commonwealth Bank had a diversified earnings base with its asset management fees, CommSec, loans and so on. Some might say that becoming simpler is better, but it’s doubling down on the increasingly-competitive mortgage space.

Commonwealth Bank, National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have size on their side, but otherwise loans are a commodity product that consumers can get from Suncorp Group Ltd (ASX: SUN), Lendi, Homeloans Limited (ASX: RMC), MyState Limited (ASX: MYS) or any other lender.

Banks can’t get away with charging much higher interest rates than competitors or else the borrower will likely move elsewhere.

Commonwealth Bank may find it difficult to grow earnings meaningfully over the next few years, particularly with little overall credit growth in the system and falling house prices. It also doesn’t help that it seems to be knocking back a lot more loan requests from potential borrowers.

If Australia doesn’t go through a recession then Commonwealth Bank could be a decent buy – you’re getting decent returns from just the dividend. However, I think there are plenty of other options out there to beat the market that have lower downside possibilities.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of MyState Limited and National Australia Bank Limited. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.