Here’s Why I’m Not Selling Commonwealth Bank (CBA) Anytime Soon

When markets get choppy, it’s tempting to look at your portfolio and wonder whether it’s time to lock in gains, cut back exposure, or “wait on the sidelines.” But when it comes to Commonwealth Bank of Australia (ASX: CBA), I’m staying put. Despite all the noise around valuations and interest rate cycles, CBA continues to deliver the one thing that matters most for long-term investors: consistent compounding backed by a fortress balance sheet.

The latest full-year results underline why CBA remains a cornerstone holding in my portfolio. Let’s walk through the numbers, the strategy, and why I believe the case for owning CBA is stronger than ever.

The Headline Year

CBA’s FY25 results were nothing short of impressive:

1. Cash NPAT rose ~4% to $10.12 billion, driven by steady loan growth, resilient margins, and lower loan impairment expenses.
2. Dividends reached a record $4.85 fully franked for the year, including a final payout of $2.60. This represents a 79% payout ratio, right at the top of management’s target range.
3. Importantly, management chose to reinvest heavily in technology and operational resilience—a move that sacrifices a little short-term optics for long-term moat durability.

In short, earnings kept climbing, dividends kept flowing, and CBA kept preparing itself for the next decade of competition.

Dividends That Don’t Flinch

Let’s be honest—one of the main reasons investors hold bank stocks is for the dividends. And on this front, CBA continues to lead.

1. At $4.85 per share fully franked, FY25 dividends hit a new record. For many income-focused investors, that’s a compelling yield when you factor in franking credits.
2. The payout ratio of 79% may look high, but it’s sustainable given CBA’s robust capital levels and conservative credit provisioning.
3. Unlike some peers, CBA has a long history of not diluting shareholders—the dividend reinvestment plan (DRP) is satisfied on-market, which preserves value.

In an environment where many companies are trimming or deferring payouts, CBA’s reliability stands out.

Balance Sheet Strength

CBA’s balance sheet gives me the confidence to hold through cycles.

1. Its Common Equity Tier 1 (CET1) ratio of ~12.3% is well above the regulatory minimum and even above the sector average of ~12%.
2. Loan arrears remain low, and impairment expenses actually fell, highlighting the quality of CBA’s loan book in a still-resilient Australian economy.
3. With this capital cushion, CBA has the flexibility to keep paying dividends, consider buybacks, and fund future growth—all without overextending itself.

This strength isn’t just about surviving downturns—it’s about being able to play offense when opportunities arise.

Margin Discipline and Growth

Margins are the lifeblood of a bank, and CBA has managed them with remarkable discipline.

1. Net Interest Margin (NIM) held steady at 2.08%, despite heavy competition for deposits.
2. The home loan book expanded around 6% to $600 billion, while business lending surged 11% to $161 billion. That balance between retail and business growth reduces reliance on one segment.
3. By leaning more on direct lending versus brokers, CBA has preserved margins while deepening customer relationships.

Combine stable margins with continued investment in technology and digital banking, and the setup for operating leverage over the medium term looks attractive.

The Valuation Debate

Now, I’ll acknowledge the elephant in the room—valuation.

1. On forward price-to-earnings (P/E) and price-to-book ratios, CBA looks expensive compared to peers. Some analysts even carry “underperform” ratings.
2. Shares have pulled back around 10–13% from recent highs, sparking debate about whether CBA is still worth the premium.
3. But here’s the thing: over the past two years, even with corrections, CBA has outperformed both peers and the broader index.

Paying up for quality is not always a bad idea—especially when that quality comes with earnings durability, balance sheet strength, and consistent dividends.

Why the Moat Still Matters

CBA’s competitive advantages—or moat—remain firmly in place:

1. Low-cost funding base from sticky deposits.
2. Best-in-class digital banking, consistently ranked highest in customer satisfaction.
3. Scale efficiencies that peers struggle to match.
4. Strong brand trust, reinforced by ongoing investments in fraud prevention and customer engagement.

These strengths translate directly into higher sustainable return on equity (ROE) than its competitors, which justifies the valuation premium in my view.

The Risks That Could Change Things

Of course, no investment is risk-free. Here are a few scenarios that could challenge the bullish thesis:

1. A margin squeeze from intense deposit competition or rapid RBA rate cuts.
2. A spike in loan impairments if unemployment rises or property markets weaken significantly.
3. Unexpected regulatory changes around capital requirements.

These are risks worth monitoring, but none of them look imminent or unmanageable given CBA’s financial position.

The Bottom Line

CBA has just delivered another record year, with $10.12 billion in cash earnings, $4.85 fully franked dividends, and a 12.3% CET1 ratio. Management is striking the right balance between rewarding shareholders today and investing for tomorrow.

Yes, the stock may look pricey at times, and yes, there will be volatility. But for long-term investors seeking reliable dividends, strong capital protection, and exposure to Australia’s leading financial franchise, the case for holding remains intact.

That’s why I’m not selling Commonwealth Bank anytime soon. In fact, I see market dips not as reasons to panic, but as opportunities to accumulate more of a company that has proven, time and again, it knows how to compound value for shareholders.

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