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Are CBA shares in the buy zone?

The Commonwealth Bank of Australia (ASX: CBA) share price has been a positive performer on the S&P/ASX 200 Index (ASX: XJO) on Tuesday.

In afternoon trade the banking giant’s shares are up 2% to $60.00.

Despite this decent gain, the Commonwealth Bank share price is still down a sizeable 34% from its 52-week high.

Are CBA shares in the buy zone?

I think Commonwealth Bank’s shares are in the buy zone at this level. Though, given how poor investment sentiment is in the sector, I wouldn’t necessarily be surprised if they went lower before going higher.

However, for patient investors that are not bothered by the day to day fluctuations of share prices, I believe an investment at the current level will yield strong total returns over the next three to four years.

Times certainly are tough for the bank right now, but the cycle will soon change and growth will emerge once more. I’d want to be holding its shares when that happens.

What about dividends?

I feel it is inevitable that Commonwealth Bank will have to cut its dividend again in FY 2021.

Estimating just how much of a cut is very difficult and will depend a lot on how accurate its COVID-19 provisions are. However, I would expect the bank to pay out a dividend of around $3.70 per share next year.

While this dividend would be just a touch higher than the one it paid all the way back in 2013, the pullback in its share price means it still equates to a very generous yield.

Based on its current share price, this implies a forward fully franked 6.15% dividend yield. That certainly is attractive in my eyes in this low interest rate environment.

Foolish Takeaway.

The Commonwealth Bank share price could easily go lower before it goes higher again. However, trading conditions will eventually improve and its share price will almost certainly start moving upwards when the market first anticipates this change.

In light of this, I think it could be a good idea to pick up shares with a long term and patient view today.

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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.