Commonwealth Bank of Australia (ASX: CBA) shares were back in hot demand on Tuesday with investors bidding the stock 1.8% higher to $93.44. Early in the afternoon, they had maxed out at $93.66 just 0.4% below their all-time high after Bell Potter raised its price target on the stock to $100.
Prior to today, the market had seemed to cool on the stock somewhat following the Reserve Bank of Australia's decision to leave interest rates on hold. Investors had widely expected interest rates to be slashed to just 2%, which would have made Commonwealth Bank's generous fully franked dividend all the more appealing.
According to Morningstar estimates, Commonwealth Bank will pay $4.30 per share in fully franked dividends this year, putting it on a yield of 4.6%. When compared to the returns from term deposits or government yields in the low interest rate environment, it's no wonder investors have been so attracted to the dividends.
However, before you rush out to buy Commonwealth Bank of Australia shares or shares in any of the big four banks for that matter, you should be aware of just how pricey they have become. At its current price tag, Commonwealth Bank is considered one of the most expensive bank stocks in the world. Although it could continue to grow earnings in the near-term as a result of falling interest rates, it also faces a number of economic headwinds that could hinder its long-term growth.
As a result, investors should avoid buying the stock and look to some of the market's other high-yield offerings instead.
