It certainly has been an eventful day for the Commonwealth Bank of Australia (ASX: CBA) share price.
The banking giant’s shares have been bouncing around today following a series of developments in the sector.
In late trade they are on course to end the day with a 2.5% decline to $60.38.
What has been happening today?
Commonwealth Bank’s shares came under pressure this morning after being hit with a double whammy of negative news.
The first was news that APRA has told the banks to limit their dividends in the months ahead in order to preserve the capacity to prioritise lending during these uncertain times.
While this doesn’t necessarily mean no dividends, there are concerns that the banks may reduce them materially during the coronavirus pandemic. This would clearly be a big blow to income investors during these tough times.
The second piece of news that was weighing on the bank’s shares this morning was that Fitch Ratings has downgraded the big four banks.
The ratings agency has downgraded its long-term ratings for all the major Australian banks by one notch to A+ from AA-. Fitch has also maintained the rating outlook for the major Australian banks as negative. This reflects the major downside risk to the economic outlook in light of the evolving global situation.
One ratings agency which is more positive is S&P Ratings. This afternoon Commonwealth Bank revealed that S&P Ratings has affirmed both its long-term and short-term ratings at AA- and A-1+, respectively.
Though, it has revised the bank’s outlook from stable to negative to reflect a substantial deterioration in Australia’s fiscal headroom at the AAA rating level.
Should you buy Commonwealth Bank’s shares?
Whilst today’s developments have been a bit of a blow for the banks, I continue to see a lot of value in Commonwealth Bank’s shares.
Especially given the dividend yield on offer with them. Although it is far from guaranteed, Goldman Sachs still expects Commonwealth Bank to pay a dividend in FY 2020.
It has looked through APRA’s requests and feels comfortable with its forecast for a 14% reduction in the bank’s dividend this year. This would mean a fully franked ~$3.70 per share dividend in FY 2020, which equates to a 6.1% yield at the current price.
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Motley Fool contributor James Mickleboro 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.