3 good reasons I’m avoiding CBA shares at all costs!

A man stands with his arms crossed in an X shape.

A man stands with his arms crossed in an X shape.

Commonwealth Bank of Australia (ASX: CBA) shares are some of the most popular investments on the S&P/ASX 200 Index (ASX: XJO). For many years, CBA was the biggest share on the ASX 200 by market capitalisation. And it remains the largest ASX 200 bank on our share market.

As such, CBA is one of the most common shares to find in an ASX share portfolio. But that doesn’t mean it’s automatically a good investment.

So today, let’s discuss three reasons why I’m personally avoiding CBA shares for my portfolio.

3 reasons why I’m avoiding CBA shares in 2023

The property market

CBA is one of the banks most heavily exposed to residential property. According to the bank’s own numbers, it had a 25% share of Australian home lending as of 31 December 2022, well above its closest competitor’s 20%. But with greater market share comes greater risk.

And it’s no secret that property prices are facing a lot of pressure right now, thanks to rising interest rates. If rates keep rising and disposable incomes fall further, then CBA might be faced with a spike in loan arrears.

This leads me to believe that CBA might not enjoy the same kinds of prosperity it has in the past from residential property, at least for the next year or two.

CBA shares are expensive

Investors have a special affinity with the CBA share price, thanks to its dominance of the Australian banking sector. But this affinity comes at a cost – investors routinely price this ASX bank share at a premium against its competitors. Let’s use a simple metric to demonstrate – the price-to-earnings (P/E) ratio.

At present, CBA’s big four competitors all have lower P/E ratios than CBA does itself. Right now, ANZ Group Holdings Ltd (ASX: ANZ) has a P/E ratio of 10.2

National Australia Bank Ltd (ASX: NAB) is at 13.85, while Westpac Banking Corp (ASX: WBC) is sitting at 14.27.

But CBA is perched atop this pole with a current P/E of 16.92. Now some might argue that Commonwealth Bank deserves to trade at a premium. But this is a steep one. This indicates to me that this bank’s share price is still elevated and doesn’t have much of a cushion for any future falls.

You can get better dividends elsewhere

Many ASX investors, especially retirees, love holding CBA shares for their fully franked dividends. And sure, right now, the bank is offering a decent dividend yield of 4.28%.

But you can get far better yields elsewhere. For example, CBA’s fellow big bank ANZ currently has a trailing dividend yield above 6%. Its smaller banking rival Bank of Queensland Ltd (ASX: BOQ) has a yield of 6.65% right now. Both come fully franked too.

And even an index exchange-traded fund (ETF) like the Vanguard Australian Shares Index ETF (ASX: VAS) has a higher trailing yield than CBA. Vanguard Australian Shares ETF units are currently sitting on a trailing yield of 7%.

So I think there are better places to go than CBA if dividend income is your primary motivation for owning this bank share.

The post 3 good reasons I’m avoiding CBA shares at all costs! appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now…

See The 5 Stocks
*Returns as of March 1 2023

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);

More reading

Motley Fool contributor Sebastian Bowen has positions in National Australia Bank, Bank of Queensland and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/SeBxRKs

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s