As investors seek stable income in an ever-changing market, dividend stocks have become an attractive option. One financial institution that has been gaining attention is the Canadian Imperial Bank of Commerce (TSX:CM).
With a dividend yield of 6.8% and a price-to-earnings ratio of 10.6, CIBC stock presents a compelling case for income-focused investors. Especially as shares continue to be down 15% in the last year. In this article, we will delve into why CIBC stock is an appealing choice in the current market environment.
A top bank and a growing one, too
CIBC stock is the fifth-largest bank in Canada by assets and one of the six financial institutions that collectively hold nearly 90% of the nation’s banking deposits. Historically, CIBC stock has been more Canada-focused compared to some of its international peers. However, this dynamic is evolving, thanks to its acquisition of PrivateBancorp, signalling a shift towards having up to 25% of its revenue coming from the United States.
CIBC stock boasts one of the larger domestic branch networks in Canada, although its products haven’t always held the top market share. Since 2011, the bank has been making significant strides by increasing its share in multiple categories and enhancing the number of products per customer. While this improvement has slowed down recently, it demonstrates CIBC stock’s commitment to expanding its market presence.
Strong in difficult times
CIBC has faced challenges in the past, including multibillion-dollar write-downs in the aftermath of the Global Financial Crisis. However, the bank has since taken significant steps to improve its operations. This includes enhancing customer satisfaction ratings, optimizing branches, streamlining internal processes, and expanding wealth operations. Furthermore, CIBC’s U.S. operations now contribute over 20% to its earnings, illustrating its diversified revenue stream. This is key as a dividend stock.
Nonetheless, it’s worth noting that CIBC stock has the highest concentration of uninsured Canadian mortgages relative to capital among its peers. While a downturn in the Canadian housing market may pose a risk, it is more likely to affect CIBC’s future growth prospects rather than posing an existential threat to the bank.
Bears versus bulls
Overall, bulls and bears have their opinions on CIBC stock. CIBC has made significant progress in enhancing core banking performance, including customer perception surveys, promoter scores, and products per customer. These improvements signify that the bank is operating at a higher level, which bodes well for its future prospects.
The dividend stock’s consolidated returns on tangible equity remain among the highest in the industry. Its focus on the Canadian market, in particular, has been a significant strength. While the government’s efforts to maintain an attractive market and control the housing sector further support its stability.
However, there is a significant amount of future growth possible due to the downturn now. CIBC is the most exposed among Canadian banks to a downturn in the housing market. The recent stress in the Canadian housing market increases risks not only for the bank but for the overall economy and banking system.
The bank has been investing significantly across multiple business lines, resulting in higher expenses compared to its peers. CIBC is counting on successful execution and market share gains, which may not materialize as expected, putting its financial performance at risk for now. CIBC has faced challenges in the past and not historically been considered one of the safest Canadian banking franchises. Recent increases in credit costs and the current economic backdrop add to concerns about the bank’s stability.
Bottom line
The thing here is that CIBC stock may take longer to rebound, but will still be a strong choice for long-term investors. That means you can pick up a strong dividend yield in the meantime. Therefore, CIBC stock presents an intriguing opportunity for income-focused investors with its 6.8% dividend yield and a price-to-earnings ratio of 10.6. Whether CIBC stock continues to perform well and maintains its status as a top dividend stock in the current market depends on its ability to navigate these challenges and achieve its growth targets. As with any investment, potential investors should carefully consider both the bullish and bearish factors before making a decision.
