Why Canadian Imperial Bank Of Commerce Is a Top Pick

Here’s why Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) should be your top pick among the Canadian banks.

| More on:
The Motley Fool

Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) has a history of disappointing investors, but things have changed and it is time to look to the future.

Here are four reasons why I think Canadian Imperial Bank of Commerce is a top pick in the financial sector.

1. Focus on wealth management

CIBC’s incoming CEO, Victor Dodig, told investors at a September 3 meeting that the company plans to spend as much as $2 billion to beef up its wealth management operations.

Canadian Imperial Bank of Commerce bought U.S. private-wealth manager Atlantic Trust in 2013. In the 2014 Luxury Brand Status Index, Atlantic Trust was rated number two among wealth management companies in the U.S.

The Atlantic Trust purchase has proven to be a smart one for CIBC and the company is looking for more acquisitions in the wealth management space.

Dodig, who will take the CEO position on September 15, currently runs CIBC’s wealth-management operations and has the experience needed to make smart acquisitions in this sector.

In the Q3 2014 earnings statement, CIBC’s wealth management division reported net income of $121 million, a 19% increase over the same period in 2013.

2. Lower risk profile

After being hammered for taking nearly $10 billion in write-downs connected to bad bets on the U.S. subprime housing market, CIBC has done a good job of reducing its risk profile.

In the Q3 statement, CIBC reported its Common Equity Tier 1 Ratio as of July 31, 2014, was 10.1%, up significantly from the year-ago level of 9.4%.

The company has also done a good job of reducing its exposure to bad loans. Provisions for credit losses were down by $107 million or 13% in the first nine months of 2014 compared to the same period in 2013. The company said the drop is the result of lower write-offs in the credit card portfolio.

3. Dividends and share buybacks

Canadian Imperial Bank of Commerce is returning significant cash flow to its shareholders. The company announced in the Q3 earnings report that it plans to buy back up to 8 million common shares in the next 12 months.

CIBC also pays a $4.00 per share dividend that yields about 3.8%. The dividend has been increased four times in the past two years and investors should see another increase in 2015.

4. Stronger customer focus

Canadian Imperial Bank of Commerce is making a lot of changes to build better relationships with its customers.

A push to originate more mortgages in the branches should lead to better add-on product sales such as credit cards, lines of credit, and investments.

The recent partnership with Tim Hortons Inc. on a credit card and points program is another way the company is connecting with its clients.

CIBC has also become a mobile-banking leader in Canada with its eDeposit services. The technology allows customers to scan, upload, and deposit multiple cheques in a single transaction. In the Q3 earnings statement, CIBC said more than 1 million cheques have ben deposited using the feature in the CIBC mobile application.

The bottom line
Bank shares have had a good run and some of the banks, including CIBC, have high exposure to the Canadian housing market. Investors need to have a long-term outlook given some of the current risks.

Canadian Imperial Bank of Commerce is heading in the right direction by focusing on wealth management, enhancing customer relationships and rewarding shareholders with increasing dividends. Investors looking to initiate a long-term bank position in their portfolio should consider CIBC as a top pick.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Bank Stocks

calculate and analyze stock
Bank Stocks

Better Than Banks: Why goeasy Is 1 of the Best Stocks to Buy Now

Bank stocks are typically excellent long-term investments, but right now, this growth stock is so cheap that it's one of…

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

Should You Buy Canadian Bank Stocks in the Face of a Potential Recession?

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock a is a great blue-chip name that investors should not hesitate to buy on…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Banking Stocks: The Cure to a Down Market?

Canadian banking stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are outperforming the S&P 500 this year. Here's why.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

Bank Earnings: Did TD Stock or Royal Bank Come Out on Top?

TD (TSX:TD)(NYSE:TD) stock and Royal Bank (TSX:RY)(NYSE:RY) stock both reported earnings on Thursday, beating earnings estimates.

Read more »

investment research
Bank Stocks

Royal Bank (TSX:RY) Raises Dividend: Time to Buy the Stock?

Royal Bank is giving investors another raise. Is the stock too cheap to ignore?

Read more »

analyze data
Bank Stocks

CIBC (TSX:CM) Raises Dividend: Should You Buy the Stock?

CIBC stock is down on the latest earnings report. Are the shares oversold?

Read more »

worry concern
Bank Stocks

Which Is the Better Pick: Suncor (TSX:SU) or 1 Big Bank?

Choosing between a resurgent oil bellwether and a big bank stock isn’t easy, because both are solid and profitable investments.

Read more »

think thought consider
Bank Stocks

Millennials: Get Through This Downturn With $173 Each Month!

With shares trading downwards, many millennial and generation Z investors may be in panic mode. But instead, get in on…

Read more »