The S&P/TSX Capped Financial Index fell 1.84% on Thursday, September 21. Financials is the largest sector on the TSX Index. The sector is powered by the Big Six Canadian banks, the largest financial institutions in the country. Historically, these profit machines have offered great balance to investors as blue-chip stocks while also serving as a symbol of stability for the broader Canadian financial system.
Today, I want to compare two of the top Canadian bank stocks: Canadian Imperial Bank of Commerce (TSX: CM) and Scotiabank (TSX: BNS). In this piece, I want to determine which bank stock is the better buy right now. Let’s jump in.
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The case for CIBC in late September 2023
CIBC (TSX: CM) is the fifth largest of the Big Six Canadian bank stocks. While CIBC does not boast the market cap of some of its larger counterparts, this bank stock is still a force in the financial space. Shares of CIBC have increased 2.3% month over month as of close on Thursday, September 21. Meanwhile, the bank stock is still down 1.7% so far in 2023.
This bank released its third-quarter (Q3) fiscal 2023 earnings on August 31. CIBC reported total revenue of $5.85 billion in Q3 2023 — up 5% compared to the previous year. Meanwhile, the bank reported adjusted net income of $1.47 billion, or $1.52 in adjusted diluted earnings per share (EPS). That was down 15% and 18%, respectively, compared to Q3 2022. Like its peers, CIBC saw its earnings take a hit due to a spike in provisions set aside for credit losses.
Net income in its Canadian Personal and Business Banking segment dropped 16% year over year to $497 million. CIBC posted higher revenues in its Canadian retail banking business, but that was offset by a jump in provisions set aside for credit losses and credit losses. CIBC’s Capital Markets segment delivered net income growth of 11% to $494 million.
Shares of CIBC currently possess a favourable price-to-earnings (P/E) ratio of 11. Meanwhile, the stock offers a quarterly dividend of $0.87 per share. That represents a tasty 6.3% yield.
Here’s why I’m still bullish on Scotiabank stock
Scotiabank (TSX: BNS) is the fourth-largest Canadian bank stock by total market cap. It is frequently referred to as “The International Bank” because of its large global footprint, particularly in Latin America. Its shares have jumped 2.9% month over month as of close on September 21. Meanwhile, the bank stock is still down 2.7% in the year-to-date period. Investors can play with the interactive price chart below to see more of its past performance.
In Q3 2023, Scotiabank reported adjusted net income of $2.22 billion, or $1.73 diluted earnings per share (EPS)– down from $2.61 billion or $2.10 in diluted EPS in the previous year. Moreover, total revenue rose marginally to $8.09 billion. Provisions for credit losses nearly doubled at Scotiabank in Q3 2023 to $819 million.
This bank stock last had an attractive P/E ratio of 10. Meanwhile, Scotiabank offers a quarterly distribution of $1.06 per share, which represents a very tasty 6.6% yield.
Which bank stock is the better buy?
Both CIBC and Scotiabank are neck-in-neck in terms of the value and income they offer at the time of this writing. However, I’m inclined to snatch up CIBC as my favoured pick today due to its reliance on the Canadian economy. Scotiabank’s global reach has been an advantage over the past decade, but Latin American economies are struggling mightily.
