The Motley Fool

Is the CBA share price a buy for its almost 8% dividend yield?

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for the grossed-up dividend yield of nearly 8%?

Just looking at the most recent reports from the banks, Westpac Banking Corp (ASX: WBC) cut its final dividend by 15% to $0.80 per share, National Australia Bank Ltd (ASX: NAB) cut its final dividend by 16% to $0.83 per share and Australia and New Zealand Banking Group (ASX: ANZ) cut its franking level of the final dividend to 70%.

Yet Commonwealth Bank was able to maintain its final dividend at $2.31 per share and the total FY19 dividend was kept at $4.31 per share, fully franked. That’s a big tick for the biggest Aussie bank. 

Being the only big four bank to maintain its total income payment to shareholders is a very attractive feature by itself. There’s no point having a big dividend if you’re going to cut the payment because it’s too high.

Boards have a lot of flexibility to decide what the dividend payment to shareholders will be, particularly if they have a good balance sheet and large profit reserves.

But it’s earnings growth that can have the biggest impact of the direction of dividends. In the FY19 results for the year to 30 September 2019, both NAB and Westpac reported lower underlying cash profit even after excluding the effects of the royal commission remediation and associated costs.

CBA just reported its result for the first quarter of FY20 which saw unaudited cash profit from continuing operations (excluding ‘notable items’ like remediation) rise by 5%. I think it’s quite impressive that in this environment of ultra-low interest rates the bank is able to grow profit when the rivals are showing profit shrinking.

Foolish takeaway

Purely looking at the dividend, I think I would prefer CBA over the other three because its dividend seems to be more reliable. Indeed, CBA’s earnings growth may be better for the rest of FY20 too, although NAB’s new leadership may have something to say about that.

However, just because CBA is the biggest doesn’t mean I think it’s the best for dividends. I think these high-quality dividend picks could be much wiser ideas for long-term dividends & growth.

3 Exciting ASX Dividend Shares For Any Income-Seeking Portfolio

When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 147%) and Collins Food (up 105%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new 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 2.8% 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.

CLICK HERE FOR YOUR FREE REPORT!