2 Bank Stocks With Unbelievable Dividends to Buy

While dividends are not the only reason to add Canadian banks to your portfolio, they are usually the primary motive.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

Canadian banks have some of the longest dividend histories in the country, with a few of them paying dividends for well over a century. This consistency and reliability have established them as the premier dividend stocks, especially when it comes to sustainability. And the fact that the Big Six are all Dividend Aristocrats further endorses their credibility as dividend stocks.

But reliability alone is not enough to make dividend stocks attractive. Investors look for dividends that are not just certain (for the long term) but also adequately sizeable. A yield that has to struggle to compete with bank interest rates, no matter how reliable it is, is not enough to move the needle in favour of a dividend stock (unless it comes with considerable capital-appreciation potential).

Then there is also the matter of dividend growth. There are many Dividend Aristocrats that grow their payouts at a very strained rate. However, the two banking stocks Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Bank of Montreal (TSX:BMO)(NYSE:BMO) are not among them. They offer strong, sustainable, and sizeable dividends with promising growth potential.

The most expensive banking stock

CIBC is currently trading at about $149 per share, making it the most expensive banking stock right now as far as the price tag is concerned. That’s quite far from the bank’s usual price range between $100 and $120 and is about 33% higher than its pre-pandemic share price. From a valuation perspective, the stock is quite an attractive buy (with a price-to-earnings multiple of 10.5).

But despite the epic 100% growth since the market crash, the stock is still offering a decent 4.3% yield, and that’s thanks to the proposed rise in payouts. The bank was paying its investors $1.46 per share, and from the first quarter of 2021, the dividends would be about $1.61 per share. That $0.15 bump is in line with the bank’s pre-pandemic dividend growth.   

The second-priciest banking stock

With a price tag of about $136 per share, Bank of Montreal is currently the second-priciest stock in the sector. It experienced an even more accelerated post-pandemic growth, and the stock has risen about 118% since the market crash. It’s not as attractively valued as CIBC, and neither is it offers a higher yield, but its 3.9% with a payout ratio of 36.6% makes it an amazing dividend stock, nevertheless.

The bank is also proposing an uncharacteristically high dividend raise from the next quarter. It’s raising its payouts from $1.06 per share in 2020 to $1.33 per share, which is significantly more than its pre-pandemic growth, which used to be under 10 cents. The 25% dividend growth is unbelievably generous.

Foolish takeaway

The two banking dividend stocks are both amazing investments for their dividend raises. While CIBC offers a better yield, BMO offers much more generous dividend growth. However, you may consider waiting for the correction to knock the two banking stocks down to a better combination of price and yield.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Bank Stocks

Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Bank Stocks

1 of the Best Dividend-Paying Bank Stocks to Buy Now and Hold Forever

Here’s a very reliable, dividend-paying Canadian bank stock you can buy at a bargain right now and hold for the…

Read more »

Prospects for TD Bank stock
Bank Stocks

TD Bank in Hot Water: An ‘Exceptional’ Opportunity

Is TD Bank stock a buy after its money-laundering regulatory problems?

Read more »

woman data analyze
Bank Stocks

Best Stocks to Buy in May 2024: TSX Financials Sector

Wondering which TSX financial stocks could see substantial growth in the future? Here are three stocks with BIG upside from…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

2 Canadian Bank Stocks to Watch in May 2024 (They’re Not the Big 5)

Watch National Bank of Canada (TSX:NA) and another top financial closely in May.

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

How Much Will Toronto-Dominion Bank Pay in Dividends This Year?

This long-term dividend payer could deliver double-digit returns going forward.

Read more »

Dividend Stocks

1 Dividend Stock Down 20% to Buy Right Now

Bank of Nova Scotia is a good income stock that's fairly valued and can deliver solid long-term returns.

Read more »

stock research, analyze data
Bank Stocks

Is Royal Bank of Canada Stock a Buy in 2024?

RBC (TSX:RY) stock looks strong heading into second-quarter earnings, so let's look at what's been happening with the biggest bank.

Read more »