3 reasons why Commonwealth Bank of Australia’s share price jumped 5% in November

It’s been a strong month for Commonwealth Bank of Australia (ASX: CBA) shares, which have handily outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in that time. While the ASX 200 has fallen 0.7%, Commonwealth Bank’s share price has risen 4.8% to trade at $80.41.

The shares have also risen 14.6% since bottoming out at $70.15 late in September. By comparison, shares of Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) have risen 9.4%, 12.3% and 7.5% since their respective lows.

Indeed, there are plenty of reasons why Commonwealth Bank’s shares might have risen so strongly recently. The most obvious suggestion is that investors are simply seeing value in the shares today after they fell so heavily from their March highs of around $96 per share. At one point, shares were trading at a 27% discount to their peak price of $96.17 (price adjusted for the capital raising).

When share prices fall, dividend yields also rise (all else being equal). The shares are currently trading on a 5.2% fully franked dividend yield, or 8.7% grossed up, which is very attractive in this low interest rate environment.

On a more macro-economic level, it’s also possible that investors are flocking back to the Big Four bank stocks on refreshed confidence in the global economy. Indeed, the banks can tend to fall hard when the economy appears to be in trouble but then rise when conditions begin to improve.

Growth is still expected to remain somewhat subdued, but China’s share market appears to have regained some composure – having steadily increased since late August – while the US Federal Reserve is also on track to hike interest rates in December, which would reflect their confidence in the economy.

Should you buy?

Although Commonwealth Bank’s share price could have even further to climb, the shares are already quite expensive at today’s price, making it a risky proposition. Indeed, earnings growth within the sector is slowing down with limited growth opportunities in the coming years, while tougher regulations could also restrict returns on equity and possibly even dividend payouts.

Personally, I’m not tempted by Commonwealth Bank at today’s share price – nor any of the Big Four banks at their current levels – and think there are plenty of other great dividend stocks to buy instead.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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