3 reasons the Commonwealth Bank of Australia share price is a HOLD

The Commonwealth Bank of Australia (ASX: CBA) share price may be a little expensive, but there are a number of reasons you might consider holding CBA in 2017.

3 reasons to hold Commonwealth Bank of Australia shares in 2017

1. Dividends. You can't talk about investing in CBA shares without discussing its dividend. In the year ahead, CBA is forecast to pay dividends of $4.20 per share. At the current CBA share price of $83, that's a dividend yield of 5.06% fully franked. If we include the value of those tax-effective franking credits, the dividend yield is 7.2%. If you bought CBA at a lower share price, your dividend yield would be larger.
2. Dominance. CBA dominates the local mortgage market with 25.4% of all home loans. The market is estimated to be worth some $400 billion per year. The thing about home loans is that they are 'sticky', meaning that we will keep paying the mortgage even if we come into some financial hardship. Sure, if homeowners don't have money to pay for anything, then CBA will feel the pain. But so long as house prices are going up — which reduces the chance of someone failing to pay off their mortgage — and interest rates are low, the majority of CBA customers can pay their mortgage bills — with interest.
3. Interest rates. You may not think it but modest increases in interest rates are really good for banks. You see, when interest rates fall, the difference between deposits and mortgage rates are squeezed and the banks have less wiggle room. When interest rates rise slowly, the banks can pass on the higher interest rates to homeowners but they can often get away with lesser increases on their deposits. This widens their profit margins.
   Sure, if interest rates go to 10% tomorrow, almost everyone would default and the CBA would explode. But the chances of that happening are low. So with interest rates expected to slowly increase over time, CBA should benefit.

At today's prices, I think CBA shares are expensive for buyers. But current shareholders could feel comfortable with the outlook for profits and dividends.