It's been a tough few weeks for shareholders of Commonwealth Bank of Australia (ASX: CBA), but those who held on for the ride have finally been offered some reprieve today with the stock up 1.5% at $92.04.
The bank's shares have come under considerable selling pressure since mid-March when they were trading at an all-time high price just below $97 per unit. At the time, investors were confident that the Reserve Bank of Australia would cut interest rates as many as three more times before the end of the year – a move that would no doubt have made the bank's fully franked dividend yield all the more appealing.
However, that confidence has since worn off. The National Australia Bank Ltd. (ASX: NAB), for instance, believes that there will now be just one more interest rate cut which will happen in August, as reported by the Fairfax press. Given the lofty premiums at which all of the banks' shares trade, some investors have likely been taking their profits off the table before others in the market can do the same.
At the same time however, others may be seeing the recent sell-off as a fantastic opportunity to buy. As previously mentioned, Commonwealth Bank has generated enormous shareholder returns over the last few years – both in the form of capital gains and dividends – and many investors are confident that trend can continue in the long run.
Should you buy Commonwealth Bank?
Many investors consider Commonwealth Bank to be an ultra-safe investment. Not only is it Australia's largest company by market value, it also has a strong track record for earnings and dividend growth. While that might hold true; now is not the time to buy.
Australia's biggest banks are facing a number of headwinds which could seriously impact their ability to generate long-term returns. Bad debts will inevitably rise, which will restrict profit growth, while stricter capital requirements could also hinder their ability to increase dividends in the near future. As such, investors looking for high-yield dividend stocks should turn their attention toward more attractively priced prospects.
