The Motley Fool

Could ASX banking shares like CBA deliver an average income of over $1,000 a month?

ASX banking shares like Commonwealth Bank of Australia (ASX: CBA) are well-known for their high dividend yields.

The high yield is partly because of their high dividend payout ratios but it’s also down to their low valuations. For example, Commonwealth Bank is trading at 16x FY20’s estimated earnings, which is cheaper than most other blue chips (except other large banks).

The two factors together mean that some investors may think of ASX banks as good value for their earnings and a good income idea.

Commonwealth Bank currently has a grossed-up dividend yield of 7.6% based on its $4.31 dividends per share over the last 12 months.

That means that to get $12,000 a year in dividends, or an average of $1,000 a month, from Commonwealth Bank it would take just under $158,000 worth of CBA shares to achieve the income goal.

Westpac Banking Corp (ASX: WBC) has an even bigger grossed-up dividend yield of 9.7%, so you’d only need around $124,000 of Westpac shares to get that level of income.

However, I hope you’re seeing the problem with this strategy.

Unless you have a multi-million dollar portfolio, having $158,000 of just Commonwealth Bank shares or $124,000 of Westpac shares is far too much in just one or two businesses in the banking industry. 

There are risks with banks, that’s why they trade at lower valuations compared to most other businesses. I think their growth prospects are quite benign these days with an uncertain property market and rising mortgage arrears.

Foolish takeaway

Whilst it’s certainly possible to generate a solid level of income from banks, it would not be my preferred dividend strategy.

For income I’d much rather invest in businesses that have lower yields but are growing and operate in solid industries like these top ASX shares.

Best 3 ASX Dividend Shares For Your Portfolio This Year

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

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 Scott Phillips.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.