Should I Buy CBA Shares

With CBA reaching all-time highs, is now a dangerous time to buy CBA? CBA has pushed past $100 per share for the first time in history. CBA has delivered a solid 18.50% per year to investors. Should I Buy CBA Shares?

CBA Share Price

Commonwealth Bank CBA, has delivered excellent returns for investors over the past decade, averaging 9.18% yearly returns (excluding dividends). After accounting for reinvested dividends, returns have been 18.50% per year.

CBA has far outperformed the average market return of 11.9% in the past decade.

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In 2021, CBA has been reaching all-time highs after pushing past $100 per share. CBA continues to trade on the higher end of its 52-week range. Before 2021 CBA’s previous all-time high was $96.2 on the 20th of March 2015.

Should I Buy CBA Shares About

Commonwealth Bank of Australia (CBA) is an Australian multinational bank, operating across Australia, New Zealand, the United Kingdom, the United States, China, Japan, Singapore, Hong Kong, Indonesia and South Africa.

CBA, also known as CommBank, is one of the “big four” Australian banks. CBA provides a range of integrated financial services including retail, business and institutional banking, funds management, superannuation, life insurance, general insurance and broking services.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares: World Bank CET1 ratios

CBA is the best-capitalized bank in the world.

Common Equity Tier 1 (CET1) is a component of Tier 1 capital that is mostly common stock held by a bank or other financial institution. It is a capital measure introduced in 2014 as a precautionary means to protect the economy from a financial crisis. 

Source, Investopedia

CBA originally floated at $2.30 per share in 1994. So today, How much are CBA shares worth?

CBA: The Biggest ASX Listed Company

Commonwealth Bank is currently the biggest ASX listed company by market cap. CBA has held this position for several years only briefly being overtaken by CSL in late 2020/early 2021 before reclaiming the top spot.

CBA has a market cap of $171,342,231,278 ($171 Billion). CBA also makes up 8.61% of the ASX 200 index.

Should I buy CBA Shares, How to buy CBA shares, How much are CBA shares worth, CBA market Cap, Market Cap graph
Should I Buy CBA Shares: CBA Market Capitalization

From this graph, we can see that CBA towers over the remaining big 4 banks: Westpac, NAB, and ANZ in terms of market cap.

CBA Dividend History

The Banking sector has been one of the favorites for investors over the years due to its decent returns and solid dividend history. It’s no surprise why the sector makes up around 30% of the entire market index. Over the past decade, big banking stocks have managed to maintain a steady flow of income for investors, with an exception of the COVID dip.

Commonwealth bank dividend, CBA dividend, CBA dividend dates 2021, CBA dividend history, CBA dividend yields,
Should I Buy CBA Shares: Dividend History

CommBank typically announces a dividend with the release of its half-year results in February and full-year results in August as seen in their financial calendar.  Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend). Should I buy CBA Shares?

CBA has paid biannual dividends every year since 1992. This included during the GFC in 2008 and the COVID-19 recessionary period. All dividends paid by CBA during this time have been fully-franked. They also offer a Dividend Reinvestment Plan (DRP).

What is CBA’s dividend policy?

Commonwealth Bank of Australia will seek to:

  • pay cash dividends at strong and sustainable levels;
  • target a full-year payout ratio of 70% – 80%; and
  • maximize the use of its franking account by paying fully franked dividends

From the above graph, we see the current dividend payout ratio is on the lower side at 65%, thus CBA plans to increase dividends to meet its goal of 70-80%. This sustainable level will allow generous dividend payments to investors while maintaining a strong cash position for the company.

Past and Present CBA Dividend Yields

CBA is currently paying a dividend of $2.48 per share, fully franked at $3.5429 per share. At the current price, this gives CBA a net dividend yield of 2.57% and a gross dividend yield of 3.67%.

It is important to note these amounts have been dramatically impacted by the banking royal commission and COVID economic environment. We can see prior to these events CBA has had a steadily growing dividend averaging $6.15 gross.

This graph shows the current yield, as well as potential yields, for changes in the CBA price or the return of its normal dividend rate.

CBA Share PriceCurrent DPS: $3.5Previous DPS: $6.15
+15%: $111.03.15%5.54%
+10%: $106.23.29%5.79%
Current: $96.53.6%6.37%
-10%: $86.64.04%7.10%
-15%: $82.04.27%7.50%
Should I Buy CBA Shares, Projected Dividend Yields

At the current CBA Share price and Dividend Per Share, the Dividend yield is relatively low compare to its 10-year average of around 5-6% net (8-10% gross).

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CBA FY21 Final Dividend (August 2021)

On the 11th of August CBA released their FY21 Full-year results and announced the final dividend, as well as an off-market share buyback.

Commonwealth bank dividend, CBA dividend, CBA dividend dates 2021, CBA dividend history, CBA dividend yields, Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares

Should I Buy CBA Shares Investor Sentiment

After surveying 193 Investors about their current CBA sentiment: BUY-HOLD-SELL as well as their target price over the next 12-months here are the results;

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares Sentiment

The results from this survey show there is currently a strong bullish investor sentiment on the CBA share price, favoring a rise of 17.4%. So how much are CBA shares worth? Let’s get into it.

Should I Buy CBA Shares Fundamentals

Market Cap$177,356,418,108
Shares Issued1,774,096,410
ASX Rank1
PE21.18x
EPS$4.719
Volume 4W Avg2,505,341
VWAP$100.20
PEG5.4x
NTA per Share$37.93
ROE12.7%
ROA0.84%
Debt$246.742 Billion
Equity$78.718 Billion
Should I Buy CBA Shares: Fundamentals

Based on their current share price we can see CBA shares have an overvalued PE of 21.18x, which is in line with the currently inflated market average of 20.8x. A company with a high PE could be seen as overvalued or may have great investor sentiment.

PE 20+: The company is overvalued/has high investor sentiment regarding growth

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Market Cap:

CBA is a large-cap company with a total market capitalization of just over $177 Billion. This makes it the largest listed ASX company by market cap. Large-cap companies are more likely to show consistent returns over time rather than short-term gains. Their prices are likely to be less volatile. Large-cap companies also tend to make regular dividend payments.

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Beta:

CBA currently has a beta of 0.7. Beta is a measure of a stock’s volatility in relation to the overall market. Lower Beta stocks are said to be less risky but provide lower return potentials, Source: Investopedia.

Earnings, and NTA per Share:

We can see CBA shares currently have earnings per share of $4.719, this gives it its PE of 21.18x. Another way of looking at this is that 4.7% of their share price is backed by solid earnings.

Their Net Tangible Assets per share is $37.93, representing 37.9% of the current share price.

42.6% of CBA’s Share price is backed by Solid Earnings and Tangible Assets

Market Liquidity:

CBA being a large-cap company poses no real risk of market liquidity. There seems to be a healthy number of buyers and sellers, in the current market. We can see the average turnover for the company is 2,505,341 equating to just over $251 million daily.

CBA Shares Fundamental Comparison

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares

Compared to the other big banks, CBA is the most expensive in terms of PE. But this is largely justified by their solid assets, and ROE of 12.7%, which far exceed Westpac, Nab, and ANZ.

CBA Shares vs The Banking Sector Averages

Compared to the Australian Banking Industry average Price per Earnings (PE) Ratio of 15.2x, CBA’s valuation seems overvalued at 21.18%. However, this is largely in line with the currently inflated market average PE ratio of 22.73x. CBA has an EPS of $4.719

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Again, in comparison to the Banking Industry CBA’s Price to Book (PB) Ratio is relatively high. When compared to the market as a whole, CBA’s valuation seems reasonable.

CBA’s Future Return on Equity (ROE) is relatively high at 12.7% compared to the Industry Average of 8.2%.

Should I Buy CBA Shares Financials

In early August CBA released their full year results for FY 2021, here are the highlights:

  • Operating Income of $24,153m, up 1.7%
  • Statutory NPAT of $8,843, (PCP: $8,653m) up 19.7%
  • Net Interest margin of 2.03%, down 4bpts
  • Loan Impairment expense of 554m, down 78%
  • EPS of 488.5 cents, up 20%

In the CBA Earnings Report, we saw excellent returns of profits with Net profit after tax (NPAT) up 19.7%, due to improved economic conditions and outlook resulting in a lower loan impairment expense and strong operational performance.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares: Source, FY21 Report

Loan impairment expenses have decreased reflecting an improvement in economic conditions and outlook.

“The Bank performed well in the year to 30 June 2021, with disciplined execution delivering strong outcomes, despite the impacts of the pandemic”

FY21 Results

CBA Earnings Report: Well Capitalised

CBA is arguably the world’s best-capitalized bank. Following on from FY21 CBA has continued its divestment program of non-core businesses to build a better, simpler bank.

Since the divestment program began in 2018 it has generated $6.2 billion in excess capital.

CBA’s strong results and divestments have left them with a very impressive balance sheet. The group has a Common Equity Tier 1 capital ratio of 13.1%, well in excess
of the APRA’s ‘unquestionably strong’ benchmark of 10.5%.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares

This has allowed the group to continue to pay strong dividends and announce an off-market buy-back. Returning excess capital to shareholders.

Commonwealth Bank is obviously in an excellent financial position to not only support the company but to grow the company going forwards. They have a wide economic moat and excellent market share.

“Close to 36 percent of Australians count CBA as their main financial institution. It has 24.9 percent of the home loan market and 26.8 percent of the deposit market”

Australian Financial Review.

CBA Financial Summary

We can see that CBA has held solid operating incomes, which were largely unaffected by the COVID recession. During the recession, CBA released a massive $2.5 Billion in loan impairment expenses, which has improved to only $554 Million in FY20.

CBA’s NPAT attributable to shareholders on a statutory basis in FY21 has been a record result of $10.181 Billion. This has largely been driven by a number of key divestments.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares Financials

CBA Balance Sheet 

We can see that CBA has had strong growth of their interest-earning assets. Across the board has increased loans by 7.5% from FY20 to FY21. As of June 2021, CBA holds $1.092 Trillion in interest-earning assets.

We can see that Home Loans, as expected are the largest part of their portfolio. CBA holds $579.8 Billion in home loans on their books. This equates to just over 53%.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares: Balance Sheet Summary FY21

Should I Buy CBA Shares Technicals

The general consensus within the Technical Analysis community is currently Neutral on CBA shares. The moving averages and Technical Indicators seem to indicate no strong trends.

In summary, the upside is likely to prevail as long as $97.6 is a support. The alternative scenario is that a downside breakout of $97.6 would call for $94.7 and $93.

NameValueAction
RSI49.873Neutral
STOCH35.185Sell
STOCHRSI32.070Sell
MACD0.010Buy
ADX32.586Buy
Williams %R-67.593Sell
CCI-34.3753Neutral
ATR0.3621Less Volatility
Highs/Lows0.0000Neutral
Ultimate Oscillator51.310Buy
ROC0.170Buy
Bull/Bear Power-0.0940Sell
Should I Buy CBA Shares Source, https://au.investing.com/equities/commonwealth-bank-of-australia-technical

Support, Resistance, and Moving Averages

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares, Software Source: TradingView

CBA Insider Ownership and Trading

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares

We can see that the general public own the large majority of CBA. This is a common trend amongst most listed shares. We can see individual insiders only own 0.2%.

With CBA originating as a government entity, a small portion of insider ownership is expected. This is a trend we see across all privatized companies this includes TLS, TAH, QAN, SYD, SUN, and CSL.

We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. We like small-cap stocks with ~30% insider ownership and a history of owners buying on market. Although Privatized companies are an exception to this.

CBA Shareholder Distibution

Holding Size1-1,0001,001-5,0005,001-10,00010,001-100,000100,001+Total
No. of Shareholders662,301181,47719,4808,086147871,491
Should I Buy CBA Shares Distibution FY21

CBA Shares Insider Trading

We can see a lot of insiders buying into CBA in 2021. However, we do notice CEO Matt Comyn executed a sale of 22,000 shares valuing $1.9 Million in March.

It is worth noting that Matt Comyn does still have 61,996 CBA shares in his possession.

DateActionValueNameSharesMax Price
18 Aug 21Buy$20,516Mary Padbury205AU$100.08
18 Aug 21Buy$25,620Robert Whitfield256AU$100.08
22 Mar 21Buy$79,945Peter Harmer948AU$84.33
19 Mar 21Buy $942Anne Templeman-Jones11AU$85.61
19 Mar 21Buy $2,140Mary Padbury25AU$85.61
19 Mar 21Buy $19,947Robert Whitfield233AU$85.61
19 Mar 21Buy $12,585Genevieve Bell147AU$85.61
16 Mar 21Sell$1,922,800Matt Comyn22,000AU$87.40
Should I Buy CBA Shares: Insider Trading

Should I Buy CBA Shares Market Share

We can see that CBA is a clear winner across the board. Commbank is the countries largest contributor to home lending and household deposits. CBA commends 25.3% of home loans, with the next big bank at 21.5%.

CBA also holds 27.4% of the credit card market share and 15.6% of business lending. All metrics have seen strong growth from FY20 as CBA continues to win market share from the other banks.

Should I Buy CBA Shares, How Much are CBA shares worth, How to Buy CBA Shares
Should I Buy CBA Shares, Market Share FY21

Should I Buy CBA Shares Future Prospects

There is no question that CommBank and the entire market have felt the effects of COVID-19. CBA has seen impairments and higher expenses. In 2021 we are beginning to see a marked turnaround in economic conditions which is, of course, very good news looking forward.

Commonwealth Bank has an incredibly strong balance sheet and retained earnings. This will position the company well to see out the final ramification of the Banking Royal Commission as well as further market uncertainty.

“our balance sheet is in very strong shape, the strongest it’s ever been”

Matt Comyn, CEO of Commonwealth Bank of Australia

In this low-interest environment, Net Interest Margins will continue to be under pressure for the foreseeable future. Despite this CBA has proven its ability to remain massively profitable.

CBA and the Royal Commission

In light of the Royal Commission CBA also divested a large portion of its subsidies; including its wealth management, Aussie Home loans, and Insurance businesses. Matt Comyn believes these are necessary steps for CommBank to build a simpler, better bank. It is too early to tell how this will impact Commonwealth Bank’s future growth.

CBA, Klarna: BNPL

CBA is also focusing on the changing market by entering into the Buy-Now Pay-Later (BNPL) space with its 5.5% stake in BNPL giant Klarna. They also unveiled their own CommBank BNPL platform, available for all their customers.

CBA Dollarmites

CBA recently lost their dollarmites program from QLD schools. This program arguably helped grow CBA’s market share. However, CBA still entices young bankers with its leading mobile app and website, which are both way above its competitors.

The General Economic Recovery

CBA’s results are largely linked to the recovery of the overall Australian economy. We have seen a fast “V-shaped recovery” across the board.

Unemployment

  • Number of employed people and hours worked in June both above pre-COVID-19 levels
  • Various federal and state government stimulus programmes continue.

Dwelling Values

  • National dwelling values 12.4% above the previous peak achieved in April 2020
  • All geographies up over the quarter and prior year. Regional growth strong.

Gross Domestic Product

  • GDP and GDP per capita up 1.1% and 0.8% respectively for the year to 31 March 2021
  • The household saving ratio of 11.6% remains well above the 1Q20 savings ratio of 7.9%.

Should I Buy CBA Shares Prophet’s Take

Commonwealth Bank has been a core business in our portfolio since the royal commission crash. It has made us excellent capital gains and dividends for the past 3 years.

We will continue to hold CBA for the foreseeable future. We see CBA as an excellent business that will continue to lead the way in the Australian Banking Industry.

How to Buy CBA Shares:

For help in how to buy CBA shares, check out our beginners guide Here. Pearler offers low-cost flat-fee brokerage, allowing you to save money on your brokerage.

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