Two pieces of recent news put Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) ahead of the pack when it comes to picking a bank stock for a TFSA. Firstly, its American arm CIBC Bank USA picked up an “outstanding” rating from the Federal Deposit Insurance on the back of a Community Reinvestment Act Performance Evaluation.
Secondly, CIBC Asset Management recently made clear its intention to terminate its Renaissance Global Resource Fund later in 2019 due to the fund’s comparatively small size. Overall, investors looking to stack shares in CIBC have a high-quality, actively streamlining financial stock to mull over. Let’s see what the market data looks like and decide what kind of signal is returned.
The data indicates CIBC is TFSA-worthy
Up 0.69% in the last five days at the time of writing, CIBC continues to be popular with investors. It’s had a good year, though its 0.2% returns over the past 12 months fell short of the Canadian banking average of 4%. However, it’s been positive in terms of earnings, with growth of 10.3% over that period.
Its five-year average past earnings growth of 10.9% is also a notable metric, since it shows better five-year performance than other Canadian banks en masse, which averaged an 8.6% growth in earnings for the same period.
In terms of its balance sheet, CIBC looks fairly normal on the face of it, with liabilities consisting largely of low-risk sources of funding, and loans funded mainly by customers’ deposits. This stock should suit the risk-averse buyer, therefore.
Further indication of this stock’s suitability for a low-risk investor would be the fact that the average tenure for a CIBC board member is 10 years, while the average management team member has been around for 3.3 years, both figures therefore being average for the industry and indicative of a fairly experienced set of hands at the wheel.
A stable dividend yield of 4.97%, in concert with CIBC’s market share, its position within the broader Canadian economic landscape, and its size, make for a solidly defensive investment and a good stock to pack in a TFSA.
CIBC’s market ratios show decent intrinsic value for money, meanwhile, with a P/B of 1.5 times book aligning perfectly with both the Canadian banking industry and the TSX index itself, making for a stock that matches the market and its peers on per-asset valuation.
Meanwhile, this stock makes an attractive accompaniment
Up 2% at the time of writing, Suncor Energy (TSX: SU)(NYSE: SU) has avoided the battering some other Canadian oil and gas stocks took over the weekend. In terms of a recent track record, Suncor Energy’s returns of 25.9% over the past three years have beaten the Canadian oil and gas average, which is, in fact, slightly negative (-1.6%). In short, it’s a worthy accompaniment to an investment in the Canadian financial industry.
A healthy ticker, Suncor Energy’s balance sheet is typified by a debt level that at 39.4% of net worth is just about satisfactory; the valuation looks good, too, for this ubiquitous energy stock, trading at a 30% discount off the future cash flow value, with a P/E of 21 times earnings and market-level P/B of 1.5 times book.
The bottom line
Suncor Energy’s dividend yield of 3.94% is above the bottom 25% of Canadian dividends, but below the top 25%. What stands this stock in such good stead for a long-term TFSA investment, though, is not just that acceptably high yield, but also (as with CIBC’s dividends) its 10-year stability and growth in payments over that period. With a 20.4% expected annual growth in earnings, and CIBC’s 6.3% expected annual growth, they make a solid pairing.
