CIBC (TSX:CM) Stock Could Plunge in 2020 if the Housing Market Crashes

The Canadian Imperial Bank of Commerce stock could plunge in case a housing market crash happens in 2020. Despite its higher mortgage exposure, the bank has placed all safeguards to weather a tough and likely scenario.

| More on:
Businessman looking at a red arrow crashing through the floor

Image source: Getty Images.

There is great concern in Canada regarding the impact of the novel coronavirus on the housing market. The 2020 pandemic has frozen what could have been a red-hot season in spring. Home sales were already up last February versus 2018, with the national average home price climbing by 15%.

Since real estate is a lagging indicator, the economic trend in the housing market can only be reflected within three months. Nonetheless, a seismic change could happen due to the bulk of company layoffs. The bank with the biggest mortgage exposure could plunge if the housing market crashes.

An acid test

In the banking sector, Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) could be the most affected. Its loan book is dedicated to retails loans, where a large portion of the average debt is mortgages. Notably, there is a higher concentration in unsecured mortgages.

A housing market crash could be painful for the fifth-largest bank in Canada. To have better control of its mortgage portfolio and preserve margins, CIBC took out its broker network and moved mortgage origination in-house. However, outsized exposure to the mortgage remains a major risk for the bank.

Unfortunately, COVID-19 is beyond CIBC’s control. The unraveling of the major risk could come if the pandemic stretches for a longer period. There’s a greater potential for consumer defaults.

No dividend cut

CIBC knows that the macroeconomic risks, and in particular, those related to the housing market, are beyond its control. But investors should be happy to note that a dividend cut is not forthcoming. According to CIBC’s CEO Victor Dodig, the bank has no plans to cut its dividend as a result of the COVID-19 pandemic.

Dodig said, “Our goal is to make sure that those dividends are flowing,” For more than 100 years, the bank has never cut its payout to shareholders. He adds that the dividends are incredibly important to investors who invest their money in CIBC. Many rely on the dividend payouts for income.

CIBC wants to reduce investors’ anxiety by ensuring there’s cash flow at this moment in time. As of this writing, this bank stock is trading at $85.03 per share and the year-to-date loss is 19.88%. The current dividend yield stands at 6.97%.

Navigating the financial turmoil

CIBC views the current pandemic as a very uniquely challenging time. For its CEO, it is the bank’s moment of truth. Since 2014, after the changing of the guards at the helm with the appointment of Victor Dodig, CIBC embarked on a series of fresh initiatives.

The prominent moves were improving operating efficiency, the building of the wealth management business and selective expansion in the United States. Over time, CIBC expects the U.S. business to contribute 25% to the bank’s overall operations. Also, the in-house mortgage origination is working thus far for CIBC and shareholders.

With perceptive stewardship and the “lower-risk” profile that management is maintaining, the bank can hit new highs again in the aftermath of the pandemic. For now, the sole focus is to help clients and employees navigate the virus-induced financial turmoil.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »