As most ASX investors would know, ASX bank shares have a very pervasive reputation for providing rivers of dividend income. For decades, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) have been some of the most consistent and highest-paying ASX blue-chip shares.
Of all the ASX banks, CBA is arguably the most popular. Not only is Commonwealth Bank the largest ASX share on the share market by market capitalisation, but it's also arguably the most revered. That's going off the significant price-to-earnings (P/E) ratio premium that CBA commands compared to the other big banks.
But if we check out how the CBA share price looks today, something might stand out.
At the current CBA share price (at the time of writing) of $102.54 a share, Commbank shares are offering a trailing dividend yield of 3.41%. That's objectively not a bad yield. But it's not quite as high as some ASX banking investors might expect.
And it certainly doesn't look too good against CBA's banking peers.
For example, NAB shares currently offer investors a trailing yield of 4.32% on current pricing. ANZ goes even higher, breaking the 5% mark with the current yield of 5.02%. And Westpac comes out on top with its yield of 5.5% as it stands today.
Why do CBA shares have the lowest big four bank dividends?
So why is CBA the laggard when it comes to ASX banking dividends? Surely, as the largest bank and the market leader, it should be first out the gate when it comes to yield?
Well, it doesn't quite work that way. Ironically perhaps, CBA's success is its own worst enemy when it comes to the yield it can offer. If investors regarded all of the ASX banks as worthy of the same P/E ratio, then CBA's dividend would be far higher. But as it stands today, CBA shares trade on a P/E ratio of 21.8. Westpac, in stark contrast, only commands a P/E ratio of 15.72.
If CBA were to descend to a P/E ratio of 15.72, it would have a share price of approximately $74 (by this writer's rough calculations). At that share price, and keeping the same 2021 dividends that CBA paid out, it would instead have a trailing dividend yield of 4.73%.
But in the real world, investors, for any number of possible reasons, have decided that CBA deserves to trade at a premium share price to its banking brethren. And as such, investors have to put up with a lower dividend yield from their shares. Sometimes, you can't have it all!
At the current CBA share price, this ASX bank has a market capitalisation of $170.6 billion.
