Here's Why the Dividend Yield Tells Us CBA Shares Are Too Expensive

The dividend yield is a key metric for income investors.

It shows the percentage of a company's share price that is paid out as dividends each year. A high dividend yield can be attractive to investors, but it can also be a sign that the company's shares are overvalued.

CBA's dividend yield is currently 3.33%.

This is higher than the average dividend yield of ASX 200 companies, which is around 2.5%. However, CBA's dividend yield is also higher than its historical average. Over the past five years, CBA's dividend yield has averaged around 3.00%.

The higher dividend yield suggests that CBA's shares may be overvalued. This is because investors are demanding a higher return for investing in CBA shares, which could indicate that they believe the shares are overpriced.

There are a number of factors that can affect a company's dividend yield.

These include the company's earnings, its dividend policy, and the interest rate environment. CBA's earnings have been growing steadily in recent years, but its dividend policy has also become more conservative. In 2014, CBA reduced its dividend payout ratio from 70% to 60%. This means that CBA is retaining more of its earnings to reinvest in the business.

The interest rate environment can also affect a company's dividend yield. When interest rates are low, investors are more likely to invest in dividend-paying stocks. This can push up the price of dividend-paying stocks and lower their dividend yield.

CBA's dividend yield is currently high relative to its historical average.

This suggests that CBA's shares may be overvalued. Investors should consider this when making investment decisions.