How the CBA share price defied the bears to surge in May

CBA shares raced ahead of the ASX 200 in May. But why?

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The Commonwealth Bank of Australia (ASX: CBA) share price shook off bearish overvaluation concerns to charge higher again in May.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed out April trading for $114.54 apiece. When the closing bell rang on 31 May, those same shares were swapping hands for $119.54, up 4.4%.

That saw the CBA share price race ahead of the ASX 200, with the benchmark index gaining a more modest 0.5% in May.

Here's what happened in the month just past.

CBA share price hits new record highs

ASX 200 investors who paid heed to bearish analysts cautioning that Australia's biggest bank is trading at an unjustifiably high premium to its peers and sold their holding will have missed out on the record high share price.

On 16 May, the CBA share price gained 1.9% to close at $122.26, marking a new all-time closing high.

The big four bank looks to have caught some tailwinds from the federal budget. With a number of cost-of-living relief measures packed in, the budget could ease the outlook for non-performing loans over the year ahead.

Investors' primary focus this month was CBA's quarterly update for the three months ending 31 March.

Although the CBA share price closed down 2.2% on the day, the ASX 200 bank stock made up for those losses, and a good bit more, over the following five trading days.

Investors initially favoured their sell buttons after CommBank reported a 1% decline in operating income and a 2% increase in operating expenses.

This, in turn, saw a 5% fall in the bank's unaudited statutory net profit after tax (NPAT), which came in at $2.4 billion for the quarter. Although NPAT still came in slightly ahead of consensus expectations.

And investors will have noted CBA's very solid Common Equity Tier 1 (CET1) ratio of 11.9%, which is safely above the minimal 10.25% ratio stipulated by the Australian Prudential Regulation Authority (APRA).

Also likely helping buoy the CBA share price over the following days was the relative resilience of the bank's net interest margins (NIMs), which should help support profits.

And longer term, the bank remains a favourite with passive income investors for its reliable fully franked dividends. While the rising share price has seen CBA's dividend yield dip to 3.8%, CommSec forecasts the dividend payouts will continue to tick higher over the next two years.

CBA is also engaged in a billion-dollar share buyback, which has been helping support the share price.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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