Canadian Imperial Bank of Commerce Is a Buy … But Where Is the Bottom?

At close to $110 per share, Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), called CIBC for short, may be looking attractive to many investors … potentially at their own peril.

Going back many years, shares of this Canadian gem have traditionally traded at a price that offered a growing dividend yield between 4% and 5%. Given the current dividend, shareholders will be rewarded with a yield of 4.6% and the opportunity for additional capital appreciation in the future.

Why not buy now?

In spite of offering an attractive valuation, investors need to remain cautious with their money. Since the end of January, shares have moved down from almost $125 per share to a current price closer to $110; shares have broken below the 200-day and 50-day simple moving averages (SMAs). When considering technical indicators, investors should take them under consideration in an effort to refine the investment process rather than invest based on these factors alone.

For those willing to take the entire year under consideration, the floor price of approximately $105 per share is an incredibly important one. As the company currently pays a dividend of $5.32 per share ($1.33 per quarter), investors would be rewarded with a 5% dividend yield at this price. It makes complete sense to buy into this major Canadian bank at such an attractive price.

But why?

As many are aware, Canada is served by only five major banks (on a national level), which means less competition, as there are high barriers to entry. Similar to many consumer staples, Canadian banks have become (as a category) very defensive in regards to how revenues, expenses, and earnings are generated. Although many recessions of the past have created a large number of write-downs for the country’s largest financial institutions, the new reality is that housing has become much more valued (by the average consumer), leading to lower volatility.

After the lending arm of the bank, there has been a very large push to enter the wealth management space and deliver “sticky” revenues to shareholders. In the past year, CIBC has completed two separate acquisitions south of the border in the wealth management space, which will further reinforce this idea to investors. Although markets decline during recessions (and the fees charged follow suit), there remains a major difference between a small decline in revenues vs. certain other divisions (such as investment banking), where business all but ceases altogether.

With so many things going in the right direction, investors need not be worried about CIBC, but instead they need to concern themselves with their own individual “pull-the-trigger” price.

With a dividend that has grown from $4.01 for fiscal 2014 to a current annual amount of $5.32 (or more for fiscal 2018), investors can also take into consideration the compounded annual growth rate of the dividend, which is no less than 7.3% and is expected to continue.

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Fool contributor Ryan Goldsman has no position in any of the stocks mentioned.

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