Dividend stocks have become one of the highest recommendations during this volatile market. With markets crashing around the world, having a plethora of stable dividend stocks is a great defensive move. That way, even if your shares are going down, you can still look forward to steady passive income.
It could be the reason that a stock like Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) is still doing so well. The stock has been touted as the one to be the worst hit of the Big Six Banks during a volatile market. So, let’s look at whether this is true and whether it could still be worth the risk to take on this amazing dividend stock.
The risk
The main risk to buying CIBC stock is that it’s the most Canadian of the Big Six Banks. This means that while its other peers have expanded around the world, CIBC remains mainly at home. This has a lot of risk. If the Canadian economy does well, awesome. But if it does poorly, like now, then the company does poorly also. Meanwhile, it doesn’t have a lot of diversification to make up for its losses.
A big problem is a housing crash. CIBC could be incredibly hurt by a housing crash, as the company again mainly invests in Canada. With housing reaching all-time highs lately, this means there could be a crash any time. So, CIBC could be seriously hurt in the process.
Luckily, there has been a change lately. The bank recently made a deal to buy a boutique investment bank in the United States. The bank also purchased Private Bancorp for US$5 billion in 2017, as it continues to expand in the United States. So, clearly, the company is trying at least begin expansion. This could mean there is a lot of room to grow.
The reward
What you could be looking forward to is some major growth in the next few years. If you’re a long-term holder, you could see similar growth from the last few decades. To use historical growth as a guide, in the last decade there has been a compound annual growth rate (CAGR) of 8%. Meanwhile, the return from the last five years has brought investors 32.28%!
But let’s turn now to the dividend. This is where CIBC shines. The bank has by far the highest dividend of $5.84 per share per year, which equates to a 5.72% dividend yield as of writing. Over the last decade, the company has had a dividend CAGR of 5.2%, and in the last five years it’s had a CAGR of 6.8%. The company believes it can keep these numbers up in the future as well.
Bottom line
When it comes to risk versus reward for this stock, it really is more reward if you’re a long-term investor. Right now, you receive a crazy dividend from this stock. The company still has assets to fall back on as well to keep the dividend going. The banks also knew there was going to be a recession, so many planned accordingly, including CIBC. So, it should be prepared for a volatile market for a while.
And if you’re holding for decades, there’s no reason to expect shares not to grow similarly to what they’ve done in the past. The company could see a further 8% per year growth after the volatile market ends. If so, you could look forward to strong dividends and solid growth for decades to come.
