Top RRSP Stock for March 2021: CIBC

Here’s why Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) could be an undervalued dividend gem to put in an RRSP today.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

March is the perfect time to think about adding to an RRSP to their portfolios to maximize long-term growth while generating tax savings. Here’s why Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is the perfect such stock today. I think you simply can’t go wrong with this stock.

Here’s why.

Profits soar as provisions for loan losses fall

CIBC has been a top earner among the big Canadian banks, achieving significant growth in earnings during Q1 2021. This is primarily due to a significant decrease in provisions for non-performing loans, customer bankruptcies, as well as double-digit returns in some of the key units.

CIBC’s net earnings reached the $1.63 billion mark for the three-month period ending January 31, 2021, representing a year-over-year (YOY) increase of approximately 34%. Moreover, CIBC EPS clocked $3.58, surpassing analysts’ expectations by a solid $1.07.

In the same quarter, provision for loan losses for CIBC’s corporate and personal banking segment fell to $54 million. As a result, there was a 13% YOY increase in profits encompassing $652 million. CIBC also provided excellent performance in its capital market segment that delivered a 30% YOY increase to approximately $493 million.

It’s a perfect match: Decent valuation and big dividends

I think Canadian bank stocks performed pretty well overall in the past year. But CIBC shares undoubtedly stand out from the rest. With a return of 3.9%, inclusive of dividends, this stock is clearly a step ahead of its peers. In fact, during the same timeframe, its Big Six peers have fallen behind with a return of -1.5%.

CIBC’s returns include the catastrophic market slumps during the months of February and March in 2020. Since the March downturn, its market price increased by 70% — a fantastic comeback that overhauled its peers’ average return of 66%.

Moreover, the dividend yield of CIBC is 5.1%, which is higher than the average dividend yield of the other five leading Canadian banks.

Bottom line

Currently, CIBC’s consensus forward P/E is only 9.7, despite its strong performance. This has typically been the case for CIBC relative to its peers. However, I think banks could see a large-scale revaluation upward if bond yields continue to rise. Improving net interest margins could provide the jet fuel these stocks need to take off.

Additionally, I think the profitability of Canadian banks will rise considerably this year on aforementioned catalysts. As more loan-loss provisions are removed, CIBC will look much more attractive in the coming quarters.

Indeed, now is the perfect time for investors to take a position in this stock, given the ample room for CIBC’s valuation to improve.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks

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 »

sad concerned deep in thought
Dividend Stocks

Is it Worth Investing in Rogers or Shaw Before the Pending Merger?

A Rogers stock and Shaw stock deal looks all but certain, yet should investors still buy the stock? Or are…

Read more »

runner ties shoe while stopped on grass outside
Dividend Stocks

Is Nutrien Stock a Buy in February 2023?

Nutrien stock should benefit from the very favourable supply/demand fundamentals in the agriculture business in 2023.

Read more »

Dividend Stocks

Is Brookfield Asset Management a Buy in February 2023?

Brookfield Asset Management is among the largest stocks trading on the TSX. Let's see why BAM stock is a buy…

Read more »