TSX investors are amazed by the earnings bonanza in the banking sector. All the Big Five banks, except for one, have reported their earnings results in Q2 fiscal 2021 (quarter ended April 30, 2021). The Bank of Nova Scotia will report its earnings on June 1, 2021.
During the quarter, the net incomes of the Royal Bank of Canada, Toronto-Dominion Bank, and Bank of Montreal increased by 171%, 144%, and 89%, respectively, versus the same period last year. However, I saved the best for last because the earnings of the three Big Banks pale in comparison to that of Canada’s fifth-largest lender.
The Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) more than tripled its second-quarter profit. From $392 million in Q2 fiscal 2020, CIBC’s net income swelled 321% to $1.65 billion in Q2 fiscal 2021.
Likewise, the provision for credit losses (PCL) in the first six months dropped to $179 million from $1.67 billion in the same period last year. If you have a healthy appetite for investment, you shouldn’t pass on CIBC. It should be the Big Bank stock to own right now.
Client-focused growth strategy
CIBC President and CEO Victor G. Dodig said about the stellar numbers, “Our strong performance in the second quarter of 2021 is a result of executing on our client-focused growth strategy.” He adds that building on the momentum in the established Canadian consumer franchise was the key to the impressive results.
Moreover, CIBC’s commercial and wealth and capital markets businesses in the U.S. reported the most significant income gains. As more people get the vaccine jabs, Dodig expects Canada to see an economic boost. During the conference call with analysts, he said, “Our neighbours to the south are enjoying an economic boost that we have yet to experience here in Canada fully.”
Gains by business segment
CIBC’s Canadian Personal and Business Banking segment’s net income rose 270% to $603 million from a year ago. Lower PCL was the reason, although expenses were also lower and volume growth was robust.
Meanwhile, the Canadian Commercial Banking and Wealth Management’s net income was $399 million, or a 94% increase from Q2 fiscal 2020. As mentioned, CIBC’s U.S. Commercial Banking and Wealth Management was a revelation. The business segment’s net income soared 1,340% in Q2 fiscal 2021 from a year ago.
Like its bigger industry peers, CIBC is a Dividend Aristocrat. The $63.79 billion company has been paying dividends for 152 years. Thus far in 2021, current investors are up 32.56%. At $142.46 per share, the dividend yield is 4.1%, which should be the second-highest in the banking sector.
The trailing one-year price return is 61.35%. Over the last 48 years, CIBC’s total return was 18,073.86 (11.37% compound annual growth rate). Market analysts also forecast the price to reach $160 in the recovery phase. The final word from its CEO is that there’s every reason to be optimistic even if the pandemic is not yet over.
Canada’s banking sector is not a house of cards that is weak and can easily be destroyed. Investors have a safe place to invest their money and build wealth over time. CIBC is a solid choice, even if it’s in the lower rung of the Big Five. The recent quarterly results indicate stability and resiliency in the face of a challenging environment.
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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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.