Canadian banks blossomed from mere deposit takers and lenders to protectors of investors. People refer to Canada’s banking sector as a bedrock of stability. The term isn’t an exaggeration because the “Big Six” are profitable and have delivered healthy, long-term returns.
Choosing which Big Bank stock to invest in today could be confusing, even if it’s between the second- and fifth-largest banks. The Toronto Dominion Bank (TSX:TD) is three times larger than the Canadian Imperial Bank of Commerce (TSX:CM), but it doesn’t mean the smaller bank is an inferior investment.
Longevity and size
The two Big Five banks are products of mergers, and the merged banks or their founders were established between 1855 and 1879. TD was formed on February 1, 1955, while CIBC’s date of birth was June 1, 1961. Size-wise, the former has the edge, at a $154.2 billion market cap versus $50.1 billion.
Share price and dividends
CIBC should have the nod of price-conscious investors as its share price is $54.22 compared to TD’s $84.98. Yield-thirsty investors will choose CIBC (6.49%) over TD (4.56%) because of the higher dividend yield. However, TD has a longer dividend track record.
TD has been paying dividends since 1857 (if you include the old chartered banks), while CIBC started sharing a portion of its profits with shareholders in 1868. Either bank’s more than 100 years of dividend payments is not in danger and will continue for decades.
Interestingly, TD and CIBC also rank second and fifth on 20-year performance and dividend growth (Bloomberg Finance data as of February 28, 2023). TD’s is 12.87% and 586%, respectively, against CIBC’s 9.84% and 315%.
Position of strength
In Q3 fiscal 2023, TD’s net income decreased 7.8% to $2.96 billion, and provision for credit losses (PCL) increased 28% to $799 million versus Q3 fiscal 2023. Still, Bharat Masrani, the Group’s President and CEO, said the strong revenue growth (10.7% year over year to $12.8 billion) demonstrates the value of TD’s diversified business mix in a challenging economic environment.
TD terminated the agreement to purchase First Horizon in the U.S., but completed the acquisition of Cowen. The combination with the full-service investment bank will expand, strengthen, and accelerate the growth of TD’s Wholesale Banking segment. “As we look ahead, TD is in a position of strength, with a growing franchise and a strong capital position,” added Masrani.
CIBC’s revenue in Q3 fiscal 2023 increased 5% to $5.9 billion, although net income dropped 14% to $1.4 billion versus Q3 fiscal 2022 due to higher PCL (+202.9% year over year to $736 million). The bank has a sizeable mortgage exposure but is amply covered by PCL if credit quality deteriorates.
Nevertheless, its President and CEO, Victor Dodig, said CIBC delivered solid financial results. He also expects the core business’s strong momentum to continue. CIBC shares are up 3.8% year to date, while TD’s positive return is 1.3%.
Staying power is the common denominator between TD and CIBC. Both banks will not disappoint in protecting your capital and sustaining quarterly dividend payments. While both stocks are not immune from market headwinds, they have recovered historically from downturns.
TD is the better choice today, but only slightly. The giant bank is the only company that reported revenue and income growth during the infamous financial crisis.