It's no secret that the ASX stock market has had a rough few weeks after officially entering a technical correction last week. Since mid-February, the S&P/ASX 200 Index (ASX: XJO) has retreated by a painful 7.2%. And that's after a 2.4% recovery that we've seen since last week. But let's talk about Commonwealth Bank of Australia (ASX: CBA) shares.
Like the broader market, it has been a punishing few weeks for this ASX 200 bank stock. It was only back in mid-February that CBA shares were riding high on the latest all-time record share price. It was around Valentine's Day that CBA clocked a new high watermark of $167.92 a share.
However, since then, this bank has well and truly come off the boil. Today, CBA shares are trading at $146.09 each, up 0.11% this Friday thus far. That's a fall of more than 13% from that mid-February high.
Last week, we saw CBA shares fall even further, getting down to a low of $141.41 last Friday, 14 March. That's a peak-to-trough drop for CBA of 15.8%.
So given this ASX 200 bank has dropped more than 10% from its most recent high in just the past few weeks, we can say with conviction that CBA shares are in a correction.
So, let's talk about some pros and cons of buying CBA shares today with that in mind.
2 reasons to buy CBA shares today
Firstly, you are getting what is unquestionably one of the ASX's best businesses for a far better price. Lower prices are always a positive for stock buyers if the underlying quality of the business remains, of course.
And CBA is still the best bank in the country. it has a huge lead in market share and dominance compared to its rivals, which is the likely reason why its shares tend to trade at a substantial premium.
Any time that premium takes a dip is arguably a time that CBA shares are worth another look.
Secondly, CBA's dividend yield has increased for new buyers as its share price has fallen. Dividend yields are inversely proportional to a company's share price. As such, someone buying CBA shares at $167.92 is going to get a lower dividend yield than someone buying at $141.41, assuming CBA's raw dividends per share remain constant.
But how much? Well, CBA's raw dividends amounted to $4.75 per share over the past 12 months. At a CBA share price of $167.92, this would have resulted in a dividend yield of 2.83%. But at last week's low, the dividend yield from a buy would have been a far more attractive 3.36%.
2 reasons not to buy this ASX 200 bank stock
The first reason that investors might not want to buy CBA, even after the recent falls, is also the dividend yield. Yes, CBA's dividend yield has risen a little. But at the current price, you will still only get a yield of 3.25% today. Now that's better than nothing. But it is also very low for an ASX bank share, which many investors only buy for the dividends.
If your goal from your investing portfolio is solely dividend income, it's hard to advocate for CBA shares when National Australia Bank Ltd (ASX: NAB) shares will get you a fully-franked 5.1% yield today. ANZ Group Holdings Ltd (ASX: ANZ) shares, although only offering partially franked dividends these days, have a yield of 5.66% on the table right now.
The second reason investors might still want to be wary of the CBA share price is, well, its price.
Although this bank has unquestionably come off the boil, it remains very expensive by historical standards. CBA shares still trade on a price-to-earnings (P/E) ratio of 25.75 and a price-to-book (P/B) ratio of 3.24. Both of these metrics are very elevated for a bank, especially one that has reported very slow growth in recent years.
To illustrate, NAB currently trades on a P/E ratio of 14.72, and a P/B ratio of 1.65. Now, as we discussed earlier, CBA arguably does deserve to trade at a premium to its big four peers. But a premium of this magnitude over NAB for both of these metrics? That's pretty hard to square.
