Shares in Commonwealth Bank of Australia (ASX: CBA) have this morning hit a high of $80 a share for the first time in the bank’s history. The bank is Australia’s largest company with a market capitalisation of almost $129 billion. Here are three reasons why Commonwealth Bank of Australia is scaling new highs:
1. More and more Australians are taking advantage of the low interest rate environment to take out home loans. Given that Commonwealth Bank of Australia maintains the biggest exposure to the Australian property market, it will continue to benefit so long as interest rates remain low.
2. To expand on that point, Australians are also taking advantage of low interest rates to repay their debts, resulting in lower provisions for bad and doubtful debts. This is helping to drive the banks to record profitability (Commonwealth Bank is on target to record an incredible annual profit of around $8.5 billion).
3. Although the bank’s dividend yield has been reduced due to the rapid increase in share price, investors are still attracted to its 4.8% fully franked dividend. In saying that however, Commonwealth Bank offers the lowest yield of any of the banks with National Australia Bank Ltd (ASX: NAB) offering the highest at 5.7%.
Commonwealth Bank isn’t the only one of Australia’s big four banks to be hovering around all-time highs with Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) also having broken their records in recent weeks.
A greater dividend than Commonwealth Bank of Australia
Commonwealth Bank might be Australia’s biggest company but it is by no means a cheap purchase, trading on an excessive P/E ratio of 15.3 and a Price-Book ratio of 2.85.