Commonwealth Bank of Australia (ASX: CBA) shares are some of the most popular investments on the S&P/ASX 200 Index (ASX: XJO). For many years, CBA was the biggest share on the ASX 200 by market capitalisation. And it remains the largest ASX 200 bank on our share market.
As such, CBA is one of the most common shares to find in an ASX share portfolio. But that doesn't mean it's automatically a good investment.
So today, let's discuss three reasons why I'm personally avoiding CBA shares for my portfolio.
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3 reasons why I'm avoiding CBA shares in 2023
The property market
CBA is one of the banks most heavily exposed to residential property. According to the bank's own numbers, it had a 25% share of Australian home lending as of 31 December 2022, well above its closest competitor's 20%. But with greater market share comes greater risk.
And it's no secret that property prices are facing a lot of pressure right now, thanks to rising interest rates. If rates keep rising and disposable incomes fall further, then CBA might be faced with a spike in loan arrears.
This leads me to believe that CBA might not enjoy the same kinds of prosperity it has in the past from residential property, at least for the next year or two.
CBA shares are expensive
Investors have a special affinity with the CBA share price, thanks to its dominance of the Australian banking sector. But this affinity comes at a cost – investors routinely price this ASX bank share at a premium against its competitors. Let's use a simple metric to demonstrate – the price-to-earnings (P/E) ratio.
At present, CBA's big four competitors all have lower P/E ratios than CBA does itself. Right now, ANZ Group Holdings Ltd (ASX: ANZ) has a P/E ratio of 10.2
National Australia Bank Ltd (ASX: NAB) is at 13.85, while Westpac Banking Corp (ASX: WBC) is sitting at 14.27.
But CBA is perched atop this pole with a current P/E of 16.92. Now some might argue that Commonwealth Bank deserves to trade at a premium. But this is a steep one. This indicates to me that this bank's share price is still elevated and doesn't have much of a cushion for any future falls.
You can get better dividends elsewhere
Many ASX investors, especially retirees, love holding CBA shares for their fully franked dividends. And sure, right now, the bank is offering a decent dividend yield of 4.28%.
But you can get far better yields elsewhere. For example, CBA's fellow big bank ANZ currently has a trailing dividend yield above 6%. Its smaller banking rival Bank of Queensland Ltd (ASX: BOQ) has a yield of 6.65% right now. Both come fully franked too.
And even an index exchange-traded fund (ETF) like the Vanguard Australian Shares Index ETF (ASX: VAS) has a higher trailing yield than CBA. Vanguard Australian Shares ETF units are currently sitting on a trailing yield of 7%.
So I think there are better places to go than CBA if dividend income is your primary motivation for owning this bank share.
