This banking giant’s shares smashed the market in 2024. But why?
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Much to the delight of its many shareholders, the Commonwealth Bank of Australia (ASX: CBA) share price was in fine form in 2024.
On Tuesday, Australia’s oldest bank’s shares ended the year at $153.25.
This means that they recorded an incredible return of 37.1% for the 12 months before dividends.
And if you add in the $4.65 per share of dividends that were paid out over the period, the bank’s shares delivered a total return of 41.2%.
This means that a $10,000 investment at the end of 2023 would now be worth approximately $14,100.
As a comparison, the S&P/ASX 200 Index (ASX: XJO) rose approximately 7.5% in 2024. And including dividends, the benchmark index delivered a return in the region of 11.2%.
Why did the CBA share price smash the market?
While the ASX 200 index delivered a return ahead of historical averages, it was nothing compared to what CBA’s shares achieved.
But why was did its shares outperform?
The company’s strong form in 2024 was impressive for a number of reasons. The first is that almost all major brokers were tipping the CBA share price to crash deep into the red a year ago. None of them were forecasting a gain, let alone a market-beating gain of 37.1%.
In addition, the Reserve Bank of Australia (RBA) didn’t cut interest rates as many were hoping. Instead, expectations for cuts have been pushed back until 2025. Still, this couldn’t stop the bank’s share price from roaring higher. Nor could the tepid Australian economic growth that was reported by the ABS.
For the 12 months ending 30 September, Australia’s economy grew by 0.8%. This is the lowest rate since the COVID-19 affected December quarter in 2020.
Strong result excites investors
The catalyst for the strong performance by the CBA share price appears to have been the bank’s robust FY 2024 results.
In August, CBA released its full year results and reported flat operating income of $27.174 billion and a 2% decline in cash net profit after tax to $9.836 billion.
While not overly strong on paper, it was better than the market was expecting. Goldman Sachs was forecasting a 3.5% decline in cash earnings from continued operations to $9.716 billion, whereas the consensus estimate stood at $9.783 billion. CBA’s profit comfortably beat both estimates.
This allowed the big four bank’s board to declare a fully franked final dividend of $2.50 per share, which brought its total dividends for FY 2024 to $4.65 per share. This was a 3% year on year increase and was ahead of the consensus estimate of $4.55 per share.
What’s next?
Once again, the CBA share price starts the year with brokers labelling it as overvalued. All the major brokers have price targets at least 25% below where its shares trade today.
Here’s hoping for another strong year, but time will tell if that is the case.
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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.
