There's more talk of a housing bubble, but the Commonwealth Bank of Australia (ASX: CBA) share price has headed higher.
What housing bubble?
We could be in the middle of a housing bubble. If it popped, it would be a terrible thing for the entire economy and Commonwealth Bank. Fortunately, I don't think we are in one.
Interest rates have dropped, sure. Household debt is up, too. But population density is increasing around major cities (forcing up property prices) and our population is only growing.
If interest rates rise suddenly that would be a disaster. But that's unlikely.
And all markets — property and share markets included — will crash from time to time. If you are a diligent long-term investor, however, you would have already accepted this fact.
3 reasons to watch CBA shares in 2017
- Dividends. Commonwealth of Australia is expected to pay a dividend equivalent to a yield of 5.1% fully franked.
- Growth. According to analysts, CBA is expected to report steady profit growth in the year ahead. While analyst forecasts are often wrong, modest growth should keep the market happy.
- Relative safety. As Australia's largest company and biggest bank, there are worse places to park your investment dollars. While no investment is guaranteed, CBA is an obvious low-risk choice for most income-focused portfolios.
Should you buy CBA shares?
I have said it a few times recently but Commonwealth Bank shares appear priced to perfection, meaning they are not a standout buy or sell in my book. The same can be said of rivals like Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ).
For shareholders, Commonwealth Bank has proven to be the best retail bank, but it attracts a premium valuation as a result of its historical performance.
The banks I'd run a ruler over first would be National Australia Bank Ltd. (ASX: NAB) and Macquarie Group Ltd (ASX: MQG). I think they both deserve further research at today's prices.
