Is the CBA share price a buy?

Is the Commonwealth Bank of Australia (ASX:CBA) share price a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy?

Australia's biggest bank has long been described as the highest-quality compared to its main competitors of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

By sticking to Australia and New Zealand, Commonwealth Bank has generated better returns than ANZ and NAB for shareholders. Australia has proven to be very fertile ground with its consistently growing economy, high employment rate and high level of median wealth.

Commonwealth Bank has done an excellent job of growing shareholder returns – since 2000 the annual dividend per share has grown from $1.29 to $4.31. The entire time it has been paying a dividend at a high yield.

Is Commonwealth Bank still a good shout for income?

With a grossed-up dividend yield of 8.5%, there are few ASX shares that offer a higher stable dividend than that.

The recent half-year result showed that $2 per share dividend was 75.4% of continuing operations earnings per share (EPS), which is high but manageable if 25% of earnings is being retained in the business.

Commonwealth Bank also said that its Common Equity Tier 1 (APRA) ratio was 10.8% at 31 December 2018, which was up from 10.1% at 30 June 2018 and 10.4% at 31 December 2017. It is well capitalised at the moment.

Foolish takeaway

Commonwealth Bank shares have risen just over 3% since the release of the Royal Commission, but are still only valued at under 14x FY19's estimated earnings. It's not a bargain, but it's not exactly expensive either.

If the housing market doesn't fall by an additional 10% or more than today may actually be a decent time to buy CBA shares. But I wouldn't want to make that bet right now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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.

More on Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »