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.
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.
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.
Like this top pick? Here are 10 more to consider right now:
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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.