Are CBA shares a 2020 dividend trap?

Is the Commonwealth Bank of Australia (ASX: CBA) share price a dividend trap in 2020?

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The Commonwealth Bank of Australia (ASX: CBA) share price has certainly been on a rollercoaster over the past few months. It was only back in February that CBA shares were trading over $90 a share.

Today, you can get the same shares for just $60.07 (at the time of writing), not too far off the lows of $53.44 we saw in March.

On current prices, CBA shares are offering a trailing dividend yield of 7.17%, which grosses-up to 10.24% with CommBank's full franking credits.

But is this dividend yield too good to be true?

All three of the other big four ASX banks have proved to be dividend traps in 2020 so far. National Australia Bank Ltd. (ASX: NAB) has slashed its 2020 interim dividend to just 30 cents per share (down from 86 cents per share last year).

And it's likely that Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) won't be paying an interim dividend at all this year. Both banks have 'deferred' their shareholder payouts until further notice.

So what's the story with Commonwealth Bank? CBA is generally regarded to be the best ASX bank on the market by investors. We can see this through the higher price-to-earnings ratio that CommBank has always and continues to command compared with the other ASX banks.

Are CBA shares a dividend trap?

Well, Commonwealth Bank has already paid a dividend in 2020 – an interim dividend of $2 that was steady with the 2019 payout.

But its 2020 final dividend is scheduled for a September payout, and it's very unclear whether this payout will go ahead at all. The only thing we know is that it probably won't be matching the 2019 final dividend of $2.31 a share.

All of the ASX banks are being caught in a gale of nasty headwinds right now. Economic activity is being severely depressed by the coronavirus and associated lockdowns. Businesses and consumers alike will struggle to service existing loans in 2020, let alone take out new ones.

And interest rates remain at virtually zero (0.25%) and look set to remain so until at least 2022, if the Reserve Bank of Australia's guidance is anything to go by. It becomes much harder for banks to generate profits when interest rates are at these levels.

On the bright side, CommBank's capital position remains strong, and (I would say) better than the other ASX banks. Its coffers have also recently been boosted by the partial sale of Colonial First State.

But combining all of these factors still point to reduced dividends from Commonwealth Bank for the rest of 2020 and going into 2021.

Foolish takeaway

We might see a dividend from CBA later this year, but even if we do, it's not likely to be close to what shareholders have become used to. Thus, Commonwealth Bank is certainly a dividend trap (in my view) if you are expecting a 7.17% yield this year. As for the future? We'll just have to wait and see.

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. 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.

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