Should You Buy CIBC (TSX:CM) Stock for the 5.4% Dividend?

Canadian Imperial Bank of Commerce (TSX:CM) (NYSE:CM) pays an attractive dividend that continues to grow. Is this the right time to buy the stock?

| More on:

Dividend stocks are back in favour this year as investors seek out better yield than those available from GICs and other alternative investments.

The result has been a rally in many of the popular income picks, but value is still out there and several stocks currently offer above-average yield with payouts that continue to grow.

Let’s take a look at Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) to see if it deserves to be in your portfolio today.

U.S. expansion

Canadian Imperial Bank of Commerce (TSX:CM) (NYSE:CM) just announced a deal to buy Milwaukee-based Cleary Gull, a boutique investment bank. The purchase follows CIBC’s US$5 billion acquisition of PrivateBancorp in 2017 as the bank expands its reach into the United States amid a push to diversify its revenue stream. Cleary, Gull specializes in middle-market investment banking activities with a focus on providing services to family and entrepreneur-owned businesses.

Undervalued?

CIBC’s shares trade at 9.1 times trailing 12-month earnings — a multiple you might expect to see during a recession or even a pending financial crisis. If all the Canadian banks traded at a similar value, it might not come up on the radar, but CIBC’s larger peers are trading at multiples of 10.5-12.5 times earnings.

A small discount to the bigger Canadian banks is expected, but the gap might be overdone. One reason is connected to CIBC’s heavy reliance on the Canadian housing market. The bank’s Canadian residential mortgage portfolio is quite large on a relative basis, and some analysts see this as a big risk in the event that the Canadian housing market tanks.

A surge in defaults and a plunge in home prices would be bad, but that isn’t likely to happen. Falling mortgage rates and a halt to interest rate increases in Canada have removed some of the threats to the housing market, and pundits generally expect to see a soft landing.

Dividend

CIBC raised its dividend earlier this year and ongoing increases should be on the way. The company remains very profitable despite missing analyst earnings expectations in fiscal Q2 2019. The current quarterly payout of $1.40 per share provides an annualized yield of 5.4%.

Should you buy?

CIBC trades at $103 per share compared to $124 last September. Additional downside could be on the way if the broader equity market pulls back or if CIBC’s next quarterly earnings report comes in weaker than expected. However, investors who buy today can pick up a solid yield and get paid well to ride out any additional volatility.

If you have some cash available to put to work in your dividend portfolio, CIBC deserves to be on your radar.

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.

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

More on Dividend Stocks

woman retiree on computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

This TSX stock has given investors a dividend increase every year for decades.

Read more »

calculate and analyze stock
Dividend Stocks

8.7% Dividend Yield: Is KP Tissue Stock a Good Buy?

This top TSX stock is certainly one to consider for that dividend yield, but is that dividend safe given the…

Read more »

grow money, wealth build
Dividend Stocks

TELUS Stock Has a Nice Yield, But This Dividend Stock Looks Safer

TELUS stock certainly has a shiny dividend, but the dividend stock simply doesn't look as stable as this other high-yielding…

Read more »

profit rises over time
Dividend Stocks

A Dividend Giant I’d Buy Over TD Stock Right Now

TD stock has long been one of the top dividend stocks for investors to consider, but that's simply no longer…

Read more »

analyze data
Dividend Stocks

Top Financial Sector Stocks for Canadian Investors in 2025

From undervalued to powerfully bullish, quite a few financial stocks might be promising prospects for the coming year.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

3 TFSA Red Flags Every Canadian Investor Should Know

Day trading in a TFSA is a red flag. Hold index funds like the Vanguard S&P 500 Index Fund (TSX:VFV)…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

1 Magnificent Canadian Stock Down 15% to Buy and Hold Forever

Magna stock has had a rough few years, but with shares down 15% in the last year (though it's recently…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Earn Steady Monthly Income With These 2 Rock-Solid Dividend Stocks

Despite looming economic and geopolitical uncertainties, these two Canadian monthly dividend stocks could help you generate reliable income in 2025…

Read more »