Dividend Investors: Should You Buy Canadian Imperial Bank of Commerce or Bank of Montreal?

Canadian banks are popular picks for new additions to a dividend portfolio.

Let’s take a look at Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Bank of Montreal (TSX:BMO)(NYSE:BMO) to see if one is a better bet right now.


CIBC has a reputation for being the risky bet among the Canadian banks after taking a massive hit on sub-prime loans during the financial crisis.

In the wake of the Great Recession, CIBC decided to focus most of its efforts on the Canadian market. The move was considered to be more conservative and has proven to be very profitable, but analysts started to get concerned in the last couple of years, feeling that the company has become too reliant on overleveraged Canadians.

Management apparently got the message and the situation is about to change.

CIBC is spending US$3.8 billion to acquire PrivateBancorp Inc., a Chicago-based commercial bank, in a move to bolster its U.S. presence. The deal is larger than most analysts expected, and CIBC investors should benefit from the move over the long term.


The company already owns Atlantic Trust, a U.S.-based wealth management firm. By adding the commercial bank, CIBC will be able to offer commercial and private banking services to the Atlantic Trust clients as well provide U.S. banking services for existing Canadian customers. The PrivateBancorp deal is expected to close in early 2017.

CIBC pays a quarterly dividend of $1.21 per share for a yield of 4.9%.

The stock currently trades at just under 11 times trailing earnings.

Bank of Montreal

Bank of Montreal is Canada’s oldest bank. With that kind of history you would think the company would command more respect with investors, but the stock is often overlooked in favour of the larger peers.

Bank of Montreal is attractive right now because it offers a diversified revenue stream with solid operations located in Canada as well as the United States.

The company’s BMO Harris Bank group has more than 500 branches located in the U.S. Midwest and provides investors with a great way to benefit from the strength of the American dollar. In the fiscal Q2 2016 earnings report, the bank reported adjusted net income of $279 million from the U.S. operations, a 27% year-over-year gain.

Bank of Montreal recently purchased GE Capital’s transport finance division in a transaction that should bolster the commercial banking operations and drive further growth south of the border.

The company just hiked the quarterly distribution to $0.86 per share, and investors who buy today can get a 4.1% yield. Bank of Montreal has paid a dividend every year since 1829.

The stock currently trades at 12.5 times trailing earnings.

Is one a better bet?

Bank of Montreal is probably the safer pick given its more diversified revenue stream.

Having said that, CIBC is less expensive, offers better yield, and should see its risk profile diminish as it integrates the new U.S. operations.

Both stocks are solid picks, but I would give CIBC the edge today.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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