Commonwealth Bank of Australia (ASX: CBA) shares are widely held among investors. But is it a good buy for dividends?
CBA is the biggest bank in Australia with the largest market share of home loans. It’s also one of the largest ASX dividend shares.
Are CBA shares’ dividends appealing?
Let’s look at the current CBA dividend yield to start judging the business.
The last two dividends from the ASX bank share come to a total of $4.55. That equates to a fully franked dividend yield of 3.5% and, including the franking credits, it’s a dividend yield of 4.9%.
Considering the 2-year and 3-year term deposit rate from CBA is around 4% right now, the CBA dividend yield isn’t that appealing considering it comes with share market risk.
The other large ASX bank shares have stronger dividend yields, largely because their valuations compared to their earnings is lower.
Excluding franking credits, Westpac Banking Corp (ASX: WBC) currently has a dividend yield of 5.8%, National Australia Bank Ltd (ASX: NAB) has a dividend yield of 4.5% and ANZ Group Holdings Ltd (ASX: ANZ) has a dividend yield of 6%.
Is the payout increasing?
I think dividend growth is important to ensure that shareholders are getting payouts that keep up with inflation.
In the FY24 first-half result, CBA’s interim dividend was increased by 2.4% to $2.15 per share. This growth wasn’t enough to keep up with current Australian inflation.
The last two dividends amount to $4.55 per share and the FY19 annual payout – before COVID – was $4.31 per share. There has only been dividend growth of 5.6% over five years. I believe that doesn’t make up for the last five years of inflation we’ve seen.
The CBA dividend has increased slowly over time, which is a positive, but there have been plenty of other businesses that have been increasing their dividends at a faster pace.
Final thoughts on CBA shares
CBA is a quality bank, but I don’t think today’s high valuation justifies an investment for dividends. The yield isn’t exciting, the growth has been slow and there could be strong competition and rising arrears for the foreseeable future.
In my opinion, there are other ASX dividend shares that could make better investments today, and I’ll continue to regularly write about where I see value.
