Outshining Shopify: The Dividend Stock That Offers More

Canada’s tech superstar delivered outsized gains in 2023, but a more stable dividend stock is a better buy in 2024.

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Canada’s tech superstar returned to the limelight in 2023 following an incredible run. Shopify’s (TSX:SHOP) gain last year was 124.43% compared to -74.80% in 2022. Market analysts see exciting possibilities for e-commerce firms in the evolving online shopping trends and adoption of artificial intelligence (AI).

Shopify overtook Royal Bank of Canada as the most valuable Canadian company in May 2020 after its market cap surged to $120 billion. However, the reign was short-lived, as the RBC reclaimed the throne in March 2021.

While the growth prospects of Shopify are bright, I’d pick an established dividend stock that offers more than the tech stock. Canadian Imperial Bank of Commerce (TSX:CM) is my choice for stability, profitability, and lifelong passive-income streams.

Investment takeaway for Shopify

Bay Street and Wall Street analysts were impressed by Shopify’s the third-quarter (Q3) 2023 financial results. In the three months ending September 30, 2023, total revenue and gross profit increased 25% and 36% to US$1.7 billion and US$901 million versus Q3 2023. The net income reached US$718 million compared to the US$159 million net loss from a year ago.

Management also notes the free cash flow has been positive for four consecutive quarters. Its president, Harley Finkelstein, said Shopify is solidifying its position as the global leader in commerce. For Shopify chief executive officer (CEO) Jeff Hoffmeister, the results showcased the business model’s durability.

Shopify relies on vigorous e-commerce activity for business growth. The company has been releasing new tools and launching programs that could drive stronger adoption of its platform. The integration of AI into its product offerings might be a game-changer.

A dividend stock that offers more

CIBC is cheaper ($61.54 versus $109.68) and pays a hefty 5.85% dividend. Besides its expensive price, income or windfall from the e-commerce platform comes only from price appreciation. You can lose money from sharp price drops.

CIBC can’t deliver sizable capital gains like Shopify, but if the stock retreats, the dividends can compensate for the temporary weakness. Historically, the big bank recovered from bear markets and crashes.

Unlike CIBC, Shopify has no dividend track record to brag about. Canada’s fifth-largest bank started paying dividends in 1868 and has not missed a dividend payment for 155 years. The longevity of dividends is a compelling reason to buy the stock. Despite strong headwinds, the $57.3 billion bank outperformed its peers in 2023.

The year ahead

The challenge for Shopify is to be ahead of the curve, as the e-commerce landscape evolves and AI becomes a dominant tool. However, it would be doubly hard to sustain momentum due to the projected slower economic growth in 2024.

Meanwhile, Canada’s banking sector has been through the worst recessions and downturns. This year will not be a cakewalk for the big banks, including CIBC. As long as interest rates remain high, the lenders will continue provisioning for credit losses. In fiscal 2023, CIBC’s provision for credit losses rose 90% to $2 billion versus fiscal 2022.

Still, Victor Dodig, CIBC’s president and CEO, said, “We enter the new fiscal year with a robust balance sheet and strong credit quality.” More importantly, dividend safety and consistency are not in doubt. Expect a decent stock performance in 2024, like last year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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