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The recent call on Commonwealth Bank (CBA) in the Income portfolio

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Question asked 05/07/2025

The recent call on Commonwealth Bank (CBA) in the Income portfolio

Hi MM team, I found your call to potentially sell CBA from the Income portfolio very interesting. Interesting because I sort of have a similar quandary regarding my holding of DBI. MM's CBA investment pays a 7.7% dividend that is fully franked (div/entry price). I have read and I think I understand the rhetoric about CBA and its lofty price but it's a comfortable cashcow. Please can you explain why MM is looking to potentially sell. Does MM have a replacement investment of similar ilk in mind (income and risk)? Or is it just a funding vehicle for the next buy? Thanks and regards, JanP Hi MM, It's more a comment than a question. I appreciated your recent comments on CBA. I unfortunately listened to too many sell-side analysts and took the opportunity to get some extra income from CBA by selling covered call options. Whilst initially out of the money, they are now well in the money so could lose them when they next go ex dividend in August. My options (no pun intended) to keep the shares are to buy out the contracts or roll them over, both at a cost to me. Otherwise, I'll take solace in the knowledge that no-one ever went broke taking a profit. Cheers Peter No jeers from us on selling CBA - go for it!- Karl

Answer

Hi Guys,

Thanks for confirming our expectations that our discussion on CBA this week would generate plenty of interest.

When we consider CBA it is from a current perspective with the bank forecast to yield around 2.6% fully franked over the next 12-months basis Wednesdays trade. Hence there are plenty of alternatives in the ASX200 with higher yield, in the banks alone ANZ Group (ANZ) is forecast to yield 6% and National Australia Bank (NAB) 4.4%. A couple of snippets from the MM Site around our MM Invest Active Income Portfolio may put our thinking into perspective:

The objective is to provide a high level of regular tax-effective income with lower volatility than the underlying share market by actively managing a portfolio of high yielding equities …….that offer diversification benefits to both Australian equities and cash or term deposits.
The portfolio will suit Investors who are seeking an actively managed Australian income portfolio, are seeking lower volatility than the underlying equity market, are seeking a sustainable income stream (inclusive of franking credits) over a 5 year + timeframe.
We benchmark to the RBA Cash Rate +4% which currently equates to 7.87% – way above CBA’s yield.

Our portfolio has outperformed its benchmark by +5.3% pa over the last 5-years, a result that would be hard to emulate with a significant holding in a highly-valued CBA with a 2.6% yield. Effectively we are considering CBA as a funding vehicle for a better yield focused investment in the years ahead.

While we recognise CBA is a world class bank we prefer ANZ for capital growth and yield at this stage. With our call CBA specific as opposed to all banks. We used the funds to buy Dicker Data (DDR) and a smaller position in Helia (HLI).

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Commonwealth Bank (CBA)

LAST UPDATED 02/07/2025 13:38

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