Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for its 10.2% grossed-up dividend yield?
The CBA trailing yield didn't go that high even during the financial services royal commission.
I think it could be a mistake to think that the next 12 months of dividends from CBA will be the same of the last 12 months of $4.31 per share.
Banks have announced a number of things that are likely to cause bank profits to fall.
The big banks like CBA, Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have agreed a six-month repayment holiday for smaller business borrowers and lowered interest rates.
Banks also face the potential that mortgage borrowers may lose their jobs and not be able to pay their loans.
But don't be too worried (yet)
Banks have been building their CET1 ratio, which is their capital levels, to a safe level over the past few years. Now they're well placed to get through this storm.
The CBA share price hasn't actually fallen that hard yet. It's down around 33%. During the GFC the CBA share price fell over 50% at the worst point.
If things get worse then the CBA share price could fall further materially. I'm not sure what the outcomes are going to be over the next few months, so I'd rather sit on the sidelines with banks.
The RBA governor has already said that interest rates are going to be lower for a long time. This is bad for bank net interest margins (NIM) and makes most other shares seem more attractive.
I think the CBA dividend could be a yield trap. I'd rather go for other dividend shares with better futures.
