Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy for the 6.75% grossed-up dividend yield on offer?
Australia's biggest bank reported its half-year result last week. It told us a number of interesting numbers.
Statutory net profit after tax was up 34% to $6.16 billion, which included $1.69 billion from the gain on sale of CFSGAM. Cash net profit dropped 4.3% to $4.48 billion.
Operating income was $12.4 billion, which was flat compared to the first half of FY19. Net interest income grew by 1.7% due to volume growth in its core businesses stable group net interest margin (NIM).
However, it must be noted that CBA's NIM actually rose by 1 basis point, or 0.01%, to 2.11% because of the benefit of lower basis risk and higher asset pricing, offset by reduced deposit and capital earnings due to the lower cash rate.
CBA said the NIM is expected to fall by 4 basis points in FY20 and another 4 basis points because of previously announced cash rate reductions.
The non-interest income was down 4.6% largely because of the impact of bushfire related claims of $83 million on insurance income, the removal and repricing of certain wealth management fees, and a realised loss on the hedge of New Zealand earnings.
Operating expenses increased by 2.6% to $5.43 billion because of higher wages and higher IT spending, as well as more spending on risk and compliance. However, in the half the bank achieved cost savings of $222 million, up from $80 million last year.
As a percentage of gross loans and acceptances, the loan loss rate increased by 2 basis points (0.02%) to 17 basis points (0.17%), although excluding the drought & bushfire provision it would have been 14 basis points (0.14%).
One of the most pleasing numbers from the result was the reduction in CBA's home loan arrears from 0.67% at December 2018 to 0.61% at December 2019. It seems households are in a better position.
CBA dividend
A lot of investors in CBA shares are just there for the dividend. Thankfully for those investors, the interim dividend was maintained at $2 per share.
Is CBA worth buying for the dividend? There is quite a valuation disparity between CBA and the other three big banks of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ). CBA is more expensive, perhaps too much.
The grossed-up dividend yield is now only 6.75% after the strong share price run last week and over the past six months.
I wouldn't buy CBA today. I think a more attractive price will be presented over the next year. And besides, I think there are other shares that have solid yields that will grow their dividends faster than CBA.
