Commonwealth Bank of Australia (ASX: CBA) hit its lowest price since early December 2014 today, falling by as much as 1.3% to just $80.47. Incredibly, the bank's stock has now fallen 16.8% since it peaked at $96.69, putting it in a 'technical correction'.
The damage can be seen on the chart below.
Source: Yahoo! Finance
Indeed, each of Australia's Big Four banks have been amongst the market's most targeted stocks in recent years due to their solid, fully franked dividends. As such, some investors are likely to view Commonwealth Bank's recent decline as an excellent opportunity to buy, but that mightn't be the wisest move.
The bank's shares are still trading at a high premium which assumes strong growth will continue for the foreseeable future. But the fact is, there are strong headwinds facing the financial sector, and the Australian economy as a whole, which could seriously hamper the bank's ability to continue growing earnings.
At the same time, Commonwealth Bank's ability to continue increasing dividends will also come under pressure as a result of its likely obligations to raise more capital as a safeguard against a potential economic downturn. The first sign that its dividend is under threat will likely spark another sell-off which could have serious implications for those investors heavily exposed to the stock.
