Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for its grossed-up dividend yield of 8%?
Some investors may be thinking it's closer to a yes these days. Over the past month the CBA share price has declined by 7.5%, increasing the dividend by a similar fraction. A short-term lower share price is a good way to pick up some cheap shares.
It has been an odd 2019 for the biggest ASX bank so far. In the first couple of months it looked as though the housing decline was going to keep declining and perhaps cause a recession.
However, the less-than-terrible royal commission report, the RBA interest rate changes, the APRA regulation changes and the Liberals election win has combined to boost confidence. That's why the CBA share price has risen by 8.6% this year.
Where to from here? It's quite hard to say. The other banks of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are generally experiencing rising loan arrears. CBA's mortgage arrears were essentially flat at 0.68%, but personal loans showed an increase from 1.44% to 1.56%. Will this lead to higher bad debts in the next report?
With interest rates falling so low, it's no wonder people are looking for alternative sources of income. Term deposits, bonds, a lot of property and some other assets just aren't paying the necessary levels of income for people who are relying on dividends.
But CBA continues to generate a good level of cash profit despite the royal commission costs, the increased mortgage arrears and some other troublesome loans.
Low interest rates have pushed up the valuations of many other ASX dividend shares such as Telstra Corporation Ltd (ASX: TLS), but CBA's share price hasn't really followed.
Foolish takeaway
CBA is trading at above 15x FY20's estimated earnings. It doesn't look cheap, but for the potential dividend yield on offer I don't think it's a terrible option either, it would probably be my pick of the big four banks for now, but I think there are many other dividend shares I would rather buy instead of CBA.
