Canadian investors have been looking to dividend stocks for safety during this turbulent time. It’s all about making passive income, and bank stocks are certainly a great place to go for that. Bank of Montreal (TSX:BMO) and Canadian Imperial Bank of Commerce (TSX:CM), in particular, are some great options.
But, which is better? Today, we’ll look at both and discuss the short- and long-term upside and downside potential of each.
Bank of Montreal
BMO stock currently holds a 5% dividend yield at the time of writing, with shares down 15% in the last year. It trades at 5.7 times earnings, offering significant value for investors willing to wait it out. And certainly, this stock could be a huge deal in terms of returns.
BMO stock as a Big Six Bank has provisions for loan losses to help it during downturns. This safety net has been used in the past and worked well. However, there is certainly something new to consider these days for BMO stock investors.
The bank recently purchased Bank of the West, a California-based bank the company officially acquired in February this year for $17.1 billion. However, the chief executive officer of the U.S. BMO branches recently left – just as the expansion starts up in earnest.
It couldn’t be worse timing as the company aims to integrate the largest-ever purchase of a U.S. bank by a Canadian financial institution. The new role will fall to the U.S. head of the wealth management unit, Darrel Hackett
While this will certainly prove good for growth in the next few years, the company is overseeing this doubling of U.S. locations at a poor time. The U.S. economy is doing poorly, with banks already closing. So it’s definitely a hard task to take on, and could mean the dividend will drop to support this expansion.
CIBC
U.S. expansion can be good for those seeking growth, but it cannot be denied that right now may not be the best time. Not that here in Canada things are doing just fine either. If any bank knows that, it’s CIBC, which has large exposure to the Canadian market. Especially the housing industry, which hasn’t been doing so great, I’m sure you’ve noticed.
When it comes to the breakdown of CIBC and its net income, the company currently has only 12% of net income from U.S. commercial banking and wealth management. It then holds 36% in Canadian personal and business banking, 31% in capital markets, and 30% in Canadian commercial banking and wealth management. So a whole lot of Canada exposure for CIBC stock as of 2022.
It’s this focus that’s gotten CIBC stock into share trouble over the last few months. When Canada does well, CIBC stock does well, but also vice versa. However, there were some recent missteps by the company that led to further drops.
One was a letter sent to clients holding guaranteed investment certificates (GIC) in non-registered accounts. It stated an account agreement could change with 30 days’ notice, leading investors to wonder if their GICs could suddenly change.
CIBC immediately took back the statement, stating it would not change the rate much but merely wanted to further its ability to contact customers through email. Still, the stock has done quite a lot to gain consumer trust in the last few years through customer surveys and attractive offers. So, the bank lost a lot of trust in a very short period of time.
Bottom line
But does it affect CIBC stock’s dividend? Not really. Investors will likely soon forget, and shares will eventually come around. Meanwhile, it offers a solid dividend yield at 6.16%, trades at 10.2 times earnings, with shares down 23% in the last year. So when it comes to these two banks right now, short term, I would go with CIBC stock for dividends. However, should BMO stock make it through this U.S. downturn, there could be huge returns for growth seekers.
