Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for dividends?
The biggest ASX bank has been a cash cow for shareholders over the past few decades. Its long-term dividend has steadily grown over the past 30 years except for the blip of the GFC.
In the past few years we've already seen dividend cuts from Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB). A cut is also more likely from Westpac Banking Corp (ASX: WBC) after it announced more customer remediation costs.
Commonwealth Bank may have the best chance of maintaining its dividend in my opinion. It has leeway of keeping some cash to improve its capital position as required by APRA, it had a dividend payout ratio of 88% in FY19 despite everything that went on during the year, but the same dividend is certainly not guaranteed. How much customer remediation does CBA have left to reveal?
In FY19 cash net profit fell by 4.7% to just under $8.5 billion. The net interest margin (NIM) is under pressure and it could come under further pressure if the RBA cuts rates any further, although that may not happen with central bankers like Dr Lowe saying not only may lower interests not be helping things but it could be causing people to shut their wallets.
So, perhaps CBA's NIM will be saved from any further compression. The housing market is coming roaring back with limited supply causing buyers trying to get a cheaper option before prices return to the all-time highs of a couple of years ago. This could lead to credit system growth, which CBA should be a beneficiary of.
Foolish takeaway
CBA has a grossed-up dividend yield of 7.7% and it's trading at 16x FY20's estimated earnings. It may be the most likely big four bank not to cut its dividend, but at this valuation I think most investors could do better with plenty of other shares in the ASX 200.
