At less than $70, CBA shares look decent value, trading on a grossed up fully franked dividend yield of almost 9 per cent

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Everything you need to know about the Australian share market today in less than three minutes… from The Capital Club. 

What’s the big deal?

The ASX 200 index is trading at close to a four month low on Monday, with mining shares and bank shares dragging the benchmark index down.

The fall in the Australian share market comes after Wall Street sank on Friday amid fears US interest rates will need to rise quicker and further than previously expected.

The yield on the US 10-year bond rose to 3.23 per cent, its highest since May 2011.

The share market gains since the depths of the GFC have largely come on the back of central banks around the world slashing interest rates to near zero in order to stimulate economic growth.

And guess what? It has worked, especially in the US, where unemployment has fallen to its lowest level since 1969.

What does this mean?

Higher yields for risk-free assets like US bonds makes them look comparatively more attractive than shares, which is why the stock market is falling.

What would you prefer to take?

A risk-free 3.23 per cent in US bonds or Commonwealth Bank of Australia (ASX:CBA) shares trading on a fully franked dividend yield of 6.2 per cent, or almost 9 per cent when grossed up for franking credits?

CBA shares look like a no-brainer, but they come with the very real chance of capital loss –CBA shares have fallen 9 per cent over the past 12 months, and like all bank shares, face headwinds.

Just today, Australia and New Zealand Banking Group (ASX:ANZ) shares have slumped 2.45 per cent after flagging an $824 million hit to its profits, in large part due to revelations at the banking royal commission.

What should you do?

Although our share markets often move in unison, the Australian and US economies are much further apart.

The disparity manifests itself more clearly in interest rates.

While the US Federal Reserve is increasing interest rates, the RBA is much more likely to stand pat, holding the cash rate at just 1.5 per cent for the rest of this year, and potentially into 2020.

By comparison to the RBA cash rate, ASX-quoted companies trading on dividend yields of around 4 to 5 per cent look very attractive, more so if they pay fully franked dividends.

Two ASX 200 dividend shares that fit the bill and might be worth a look are Tabcorp (ASX:TAH) and Mineral Resources (ASX:MIN).

Although I’ve long been cautious about bank shares, I wouldn’t be selling out of any shares on a down day like today.

On the contrary, trading on a grossed up dividend yield of 8.9 per cent, CBA shares look decent value.

Some time this week, I wouldn’t be surprised if Wall Street has a change of heart, putting aside inflationary fears and focusing on how the booming US economy will drive higher corporate profits.

As a stock market investor, the worst thing you can do is trade in and out of the market on the emotions of fear and greed.

Stay in the market come what may, add to your investments over time, and commit to being an investor for life. Sit back and let the miracle of compound returns do the rest. 

Here’s how you can strike it rich in the share market

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Best of all, the report is absolutely free, exclusively for readers of The Capital Club.

In this comprehensive free report, you’ll find the name of one ASX gold stock that’s not only profitable, but trading at less than 4 times forecast profits.

You’ll also discover the name of a company one fund manager has called the cheapest stock in the ASX 100, and you’ll read about the three catalysts that could push the share price higher in the next six months.

Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

With the share prices of each of these 3 companies having the potential to double or more, you’ll want to act now. Simply click here or the button below, enter your email address, and this free report will be instantly sent to you.

See the 3 stocks

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Top fund manager names this iconic company as “the cheapest stock in the ASX 100”

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au