Commonwealth Bank of Australia (ASX: CBA) has managed to regain some composure this week, although its shares remain well below their recent levels. The stock has risen just over 1% in today's session to be trading at $84.47, giving it a total gain of 2.2% over the course of the week.
That compares favourably to last week's staggering 7.1% decline, which came as a result of a poor third quarter earnings report, together with speculation that the Reserve Bank of Australia's latest interest rate cutting cycle has drawn to a close.
Indeed, Commonwealth Bank, together with each of its major rivals, has managed to generate enormous returns for investors in recent years, but more recently it has been the market's irrationality that has pushed it to unprecedented heights. It seems that the market lost sight of just how expensive the bank's stock had become, while investors allowed their hunger for solid, fully franked dividend yields in an otherwise low interest rate environment to dictate their investing decisions.
Those investors who purchased at the peak may have realised by now that a reliable dividend yield isn't enough to compensate for a plunging share price. The stock has fallen 12.6% since hitting a high of $96.69 recently and could well be facing further falls.
Although Commonwealth Bank's shares have managed to scrape together a gain over the last week, investors should not see this as an opportunity to buy. While the stock may continue to rise, it is still by no means a bargain, whereby investors who buy could be committing themselves to years of underperformance.
Importantly, that doesn't mean I'm bearish on all dividend stocks, not by a long shot! The nation's official cash rate is now sitting at a record low of just 2%, and some analysts believe the next rate hike won't come until at least 2018.
Even then, I don't see them ascending too quickly. That makes high yielding dividend stocks extremely appealing right now! But there are far greater buys than Commonwealth Bank, or any of Australia's largest banks, for that matter.
