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With the 8.3% dividend yield, is the CBA share price a buy?

Tristan Harrison
CBA share price

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for the 8.3% grossed-up dividend yield?

It has been a good Easter period for the Commonwealth Bank share price, it risen 3.5% in just over a week.

The country’s biggest bank is under pressure on several sides at the moment. Potential borrowers are finding it harder to access credit these days and politicians would like banks to lend again so the housing market doesn’t keep going down as much. Potential class actions and the royal commission still hang over the banking sector.

Investors have long held up Commonwealth Bank as being the superior choice to the others of Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

Once a customer has chosen their financial provider they are fairly unlikely to move. So, having so many different customer touch points is a clever strategy – think of Dollarmites, CommSec, CommBank and the widespread CBA branch network.

However, we recently learned of a plan that might involve CBA finding and cutting around $2 billion of annual costs with a substantial reduction of employee numbers, perhaps over 10,000 people. This may mean that the worst-performing bank branches are closed in the medium term.

Although the CBA dividend yield may not be as high as some of the other big ASX banks, I think it might be the most attractive because the big bank continues to grow its dividend, whereas all the other major banks are holding their dividend at the same level. Inflation can hurt after several years of no dividend increases.

Foolish takeaway

In 2016 CBA paid a dividend of $4.20 per share and the last 12 months of dividends amounts to $4.31. If I had to buy one ASX bank I would probably go for CBA or NAB at the moment.

But I think there are better income shares out there than the big banks, such as these leading ASX dividend stocks.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019