It’s no secret that investing in the Big Six Canadian bank stocks is popular among investors across the country and even abroad. And with Canadian Imperial Bank of Commerce (TSX:CM) offering one of the highest dividend yields of the Big Six at 5.5%, it’s naturally a stock that many investors are wondering if they should buy.
The Canadian banking system is renowned around the world for its safety. It’s highly regulated, and the banks are typically quite conservative, making them safe and reliable investments that can earn you attractive returns.
Over the last decade, for example, CIBC stock has earned investors a compound annual growth rate of more than 9%. That’s one of the main reasons why it and the other Big Six bank stocks are some of the best long-term investments you can make.
Over the course of the last year, however, the changing economic conditions have made many investors cautious about bank stocks. In fact, CIBC currently trades roughly 25% off its 52-week high.
So, after reporting its first-quarter earnings for fiscal 2023 this morning, let’s see whether CIBC stock is worth buying while it’s offering a compelling discount.
CIBC stock reports first-quarter earnings
Earnings season is a crucial time to get an update on stocks during any year, but it’s especially important in the current market environment.
It was positive to see CIBC stock post earnings that were generally positive. The headline number was adjusted cash earnings per share (EPS) of $1.94, which was down 5% year over year. That’s not necessarily surprising, given the worsening economy. It was, however, well ahead of consensus estimates, which were $1.71.
Another important measure that investors look at is pre-tax, pre-provision (PTPP) earnings, which shows a bank’s earnings before it pays taxes and sets aside provisions for losses, making it an important operating metric to assess.
CIBC’s PTPP in the first quarter was up 5% year over year. This was due to higher net interest income thanks to an increase in loans and net interest margins. However, CIBC’s expenses increased by 9% year over year, which partially offset some of this growth.
Therefore, while CIBC stock’s earnings were somewhat positive and it continues to grow, there are certainly signs of a weakening economy which could continue weighing on its performance in the short term.
Is CIBC worth buying today?
The good news about bank stocks is that they are highly resilient, and even if credit losses and expenses do increase for a few quarters, over the long run, these companies should continue to achieve strong and consistent growth.
If you’re looking at buying CIBC stock today, as with any stock, you should be focused on buying the stock to hold for years or even decades to come.
That makes its significant discount today a major opportunity for investors. Right now, CIBC stock is trading at just nine times its forward normalized earnings, which is below its 10-year average of 9.9 times.
Furthermore, that’s based on earnings that are expected to be impacted over the next 12 months, as the economy faces a potential recession. So, not only can you buy CIBC stock at a discount today, but as the economy recovers, it could see major upside.
Plus, on top of the value that CIBC stock offers, as I mentioned before, its dividend is currently offering a yield of 5.5%. And that dividend has been increased every year for over a decade. Plus, the dividend should be extremely safe as CIBC aims to keep its payout ratio between 40% and 50%.
If you’re considering adding CIBC to your portfolio, although it may face increased risk in the short term, it’s still one of the best companies that Canadians can buy as a long-term investment.
