Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy?
Australia's biggest bank has long been described as the highest-quality compared to its main competitors of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
By sticking to Australia and New Zealand, Commonwealth Bank has generated better returns than ANZ and NAB for shareholders. Australia has proven to be very fertile ground with its consistently growing economy, high employment rate and high level of median wealth.
Commonwealth Bank has done an excellent job of growing shareholder returns – since 2000 the annual dividend per share has grown from $1.29 to $4.31. The entire time it has been paying a dividend at a high yield.
Is Commonwealth Bank still a good shout for income?
With a grossed-up dividend yield of 8.5%, there are few ASX shares that offer a higher stable dividend than that.
The recent half-year result showed that $2 per share dividend was 75.4% of continuing operations earnings per share (EPS), which is high but manageable if 25% of earnings is being retained in the business.
Commonwealth Bank also said that its Common Equity Tier 1 (APRA) ratio was 10.8% at 31 December 2018, which was up from 10.1% at 30 June 2018 and 10.4% at 31 December 2017. It is well capitalised at the moment.
Foolish takeaway
Commonwealth Bank shares have risen just over 3% since the release of the Royal Commission, but are still only valued at under 14x FY19's estimated earnings. It's not a bargain, but it's not exactly expensive either.
If the housing market doesn't fall by an additional 10% or more than today may actually be a decent time to buy CBA shares. But I wouldn't want to make that bet right now.
