Comparing the fifth-largest Canadian bank to the third-largest one might seem like a no-brainer, but when it comes to choosing which one to invest in, there’s a lot more to consider than just the magnitude. Both Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) have seen declines in market values. The last quarter was especially hard, but things are starting to look up again.
Market-cap wise, Scotiabank is twice the size of CIBC. But even with a smaller magnitude, CIBC has seen a steadier growth in the past year compared to Scotiabank. At the start of the year, according to a fellow Fool writer, Scotiabank was considered the better choice for investors when compared to CIBC. With the current quarter near its end, let’s see if that statement still holds true.
With an 11.35% growth in revenue, Scotiabank is at a better place than it was last year. The current market value of a share is $74.7. The price per share is better than it was at the start of the year but lower compared to last year.
Scotiabank has also seen fluctuation in the net income in the past four quarters. Casting a few doubts on the current operational efficiency on a bank of such magnitude. At the end of the last quarter (July 2019), net income was down 6% from what it was last year.
On the plus side, with a price-to-earnings ratio of 11.16, which is 1.73 higher than CIBC, investors can expect higher earnings growth in the future.
CIBC, the underdog compared to others in the Big Five, is producing many stable numbers. Even with a relatively low revenue generation of 3.14%, the net income of CIBC stands at 1.98% of what it was last year. Apart from a dip in the fourth quarter of last year, it has been steady.
If we compare dividends, CIBC stands a bit ahead of Scotiabank. With a dividend rate of 5.36% compared to 4.85% for Scotiabank, you will get more out of your dollars. CIBC’s return on equity is also better at 13.81%.
CIBC suffered a lot in the past by investing mostly in the local housing market. This single source of revenue stream was always considered a risky move and held many cautious investors at bay. Over the past few years, CIBC has expanded. The bank has diversified its operation to the U.S. market. The expansion accounted for 25% of the bank’s revenue generation in the past year. This number is expected to increase as CIBC continues to diversify.
With its revenue-generation stream evenly divided between the local market, Latin America, and the U.S., Scotiabank seems like a safer investment option. However, with consistent growth in the last two quarters, higher dividend yield, and relative stability, CIBC could be the better investment option.
CIBC is currently trading at a rate of $102 per share. As the end of the quarter, now is an excellent time to buy in. Once this quarter breaks, the steady growth of the bank is expected to drive a higher share price in the next month.