Bank stocks are a popular option for investors in Canada. Canadian banks are profit machines that boast a history of stability that has been the envy of financial institutions in other developed nations. These equities provide a nice balance of capital growth and income that make them a terrific hold in a tax-free savings account.
However, today I want to focus on one bank stock that stands above its peers in the income department. An improving situation in the housing market also make this bank a worthy target in late 2019.
Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is the fifth-largest Canadian bank. Shares of CIBC have climbed 10.9% in 2019 as of close on October 9. Back in August I’d recommended that investors jump on CIBC stock at a low price ahead of its third quarter earnings release. At the time shares were priced below the $100 mark.
CIBC stock doesn’t offer the kind of discount we saw before its earnings release, but it’s still an appealing target for income investors. In the third quarter the bank announced that it would hike its quarterly dividend to $1.44 per share, which represents a 5.3% yield. The bank has achieved dividend growth for eight consecutive years.
In the third quarter CIBC reported adjusted net income of $1.41 billion, up 1% from the prior year and 4% from the previous quarter. Adjusted income in Canadian Personal and Small Business Banking rose 2% year over year to $659 million.
This was primarily due to volume growth and wider spreads. U.S. Commercial Banking and Wealth Management was another high point, as adjusted profit increased 6% from the prior year to $182 million. Higher overall revenues were the key driver in earnings growth.
CIBC and housing
The bank paid for its bet on large metropolitan markets over the past two years as sales activity dropped sharply in late 2017 and through most of 2018. Of its $201 billion mortgage balance at the end of Q3 2019, $90 billion came from the Greater Toronto Area and Greater Vancouver. This September, CIBC announced that it would reorient its mortgage strategy with a broader focus.
A broad-based approach is well timed in an improving domestic market. Investors should pay attention to its mortgage portfolio in the fourth quarter to see if it’s able to shrink its reliance on the GTA and Greater Vancouver.
Why CIBC is still a buy today
Shares of CIBC have climbed 5.3% over the past month at the time of this writing. However, its price-to-earnings ratio of 9.5 and price-to-book value of 1.3 means it still boasts some of the best value in comparison to its Big Six peers.
CIBC still has room to run in 2019 and its strategic shift on the mortgage side holds promise in this improved housing market. The stock is still one of the better bank adds in the early fall.
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 Ambrose O'Callaghan has no position in any of the stocks mentioned.