Income investors are constantly on the hunt for stocks with above-average dividend payments that are both reliable and growing.
Let’s take a look at two companies that might be interesting picks for your portfolio today.
At the current price of $112 per share, CIBC’s dividend provides a yield of 5%.
Many investors skip CIBC in favour of its larger peers, primarily due to concerns that the company is over-exposed to the Canadian residential housing market. It is true that CIBC’s mortgage portfolio is large relative to its size. The company has a market capitalization of $50 billion and reported total mortgages and home equity lines of credit (HELOC) of about $223 billion at the end of the last quarter. Royal Bank is three times larger than CIBC by market capitalization, but its mortgage and HELOC book is just $286 billion.
A meltdown in the Canadian property market would certainly hit CIBC harder than some of the other banks, but things would have to get pretty bad before the company takes a material hit. Households have weathered the rate increases reasonably well over the past two years, and it looks like the Bank of Canada is going to pause its rate-hike program, which should help avoid a hard landing for the housing market.
CIBC remains very profitable and has a strong capital position, so the dividend should be solid. Currently trading at less than 10 times trailing earnings, the stock appears somewhat oversold.
Power Financial (TSX:PWF)
Power Financial is a holding company with Canadian assets in the insurance and wealth management sector. It is also part owner of a European firm that has positions in a variety of the region’s top global businesses.
For the first nine months of 2018 the company reported net earnings of $1.8 billion, or $2.48 per share, compared to $1.5 billion, or $2.09 in the same period the previous year. The Q4 results come out next week and should round out a solid performance. The company just announced plans to spend $1.65 billion on a share buyback program, so management appears to think the stock is undervalued.
Power Financial’s stock price is up nearly 20% from the December low and is approaching its 12-month high. More upside could be on the way and investors can still pick up an attractive 5.8% yield. The company raised the payout last year, and given the share-repurchase announcement, another dividend hike is likely in the cards for 2019.
Is one a better bet?
CIBC and Power Financial should both be solid buy-and-hold picks for an income-focused portfolio. If you only buy one, CIBC looks oversold today and could provide some nice upside when sentiment improves.