Earlier in the week, we wrote that Commonwealth Bank of Australia (ASX: CBA) pipped BHP Billiton Limited (ASX: BHP) to be the most traded stock, by value, on the ASX in 2016. Well, it probably will be in 2017, as well.
Commonwealth Bank of Australia is the country's biggest company by market capitalisation. Indeed, the market values it at north of $146 billion, making it more than twice the size of Telstra Corporation Ltd (ASX: TLS), valued at $62.7 billion, and nearly 5 times as large as Woolworths Limited (ASX: WOW), valued at $31 billion.
It also has a history of generating very strong returns for investors, both in the form of capital gains and dividends. Based on its current share price of $85.03, the bank is trading on a trailing 4.9% fully franked dividend yield, equating to almost 7.1% grossed up. That is significantly better than the interest returns on offer from term deposits; thus, many would prefer to buy the banks than put money in the banks.
Subsequently, Commonwealth Bank will likely remain one of, if not the most traded stock on the ASX again in 2017. After all, it is very popular among retirees and self-managed super funds (SMSFs), many of whom are familiar with the bank and view it as a reliable and 'low risk' option, thus representing a significant chunk of many of their portfolios.
BHP Billiton will also be among Australia's most traded stocks, although without another significant lift in global growth, seems unlikely to pip Commonwealth Bank's lead in that regard.
Yet despite its sheer popularity and generous dividend yield, the bank's shares are not cheap. Contrary to what many think, the banks as a group are also facing a number of risks, including an over-reliance on Australia's housing sector and their vulnerability to a potential pullback in the Australian or global economies.
I don't think investors should rush out and sell their bank shares. Nor do I think the economy is on the verge of collapse! What I know, however, is that investors should always consider their portfolio as a whole and not rely too heavily on one individual stock, or sector. If Commonwealth Bank of Australia shares do represent a substantial chunk of your portfolio, you should at least consider spreading your risk and buying other high-quality businesses as well.
