The Commonwealth Bank of Australia (ASX: CBA) share price is down 3% to $77.06 this morning, but there’s no need for shareholders to throw the baby out with the bath water just yet.
The shares are down as the bank has gone without the rights to its $2.31 per share final fully franked dividend.
Commonly on the day a stock trades without the rights to a twice yearly dividend it’s value will fall roughly in line with that of the dividend payment. CBA shares are down $2.40 this morning, almost exactly in line with the $2.31 value of the dividend.
If you assume that the bank can maintain annual dividends at $4.62 per share in FY20 it offers a yield of 6% plus full franking credits.
This would be attractive to many conservative or SMSF investors seeking retirement income from a ‘defensive’ business, but investors must be aware it’s possible that even the CBA will be forced to cut its dividend over the next 12 months.
At the end of the day earnings pay dividends and if CBA’s earnings fall on the back of a weak Australian economy, rising costs, and ultra-low cash rates the dividend will come down with the earnings.
Recently, National Australia Bank Ltd (ASX: NAB) was forced to cut its dividend 16% and none of the ‘blue chip’ big banks are immune from potential dividend cuts.
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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