The financial sector, where bank stocks belong, is the fifth top performer (+4.78% year to date) among 11 primary sectors after two rate cuts by the Bank of Canada. Market observers expect these lenders to regain strength once the rate-cutting cycle begins because higher borrowing costs hampered them.
However, Canadian Imperial Bank of Commerce (TSX: CM) and EQB (TSX: EQB) are well-poised to pop, if not break out soon. The bank stocks have market-beating and sector-beating returns thus far in 2024, with +11.15% and +8.65%, respectively. Both companies also reported impressive second-quarter (Q2) fiscal 2024 results.
Generous big bank stock
CIBC is a no-brainer choice for income-focused investors, including retirees. At $69.03 per share, the big bank stock pays a generous and lucrative 5.22% dividend. A $34,515 investment (500 shares) will generate $450.22 in quarterly passive income. If you reinvest the dividends every time, your capital should balloon to $75,138.20 in 15 years.
The $65 billion bank, Canada’s fifth-largest financial institution, has been paying dividends for 156 years and counting. Given the 54.05% payout ratio, the quarterly payouts are well covered by earnings. In Q2 fiscal 2024, revenue and net income rose 8% and 4% to $6.16 billion and $1.75 billion versus Q2 fiscal 2023.
On August 1, 2024, CIBC announced an enhanced partnership with Vector Institute, an independent, non-profit corporation dedicated to advancing AI through world-class research and application. Vector will help the bank develop artificial intelligence (AI) talent and strengthen its commitment to the AI ecosystem.
Growing franchise
EQB specializes in residential and commercial real estate lending. ACM Advisors, a wholly-owned subsidiary, specializes in wealth asset management, while Challenger Bank provides personal and commercial banking services.
At $93.81 per share, the dividend offer is 1.92%. The yield is modest but is safe and secure, given the tiny 14.6% payout ratio. EQB recently announced a 7% dividend hike and should have ample room for further growth. Performance-wise, the total return in five years is 123.46%, representing a compound annual growth rate (CAGR) of 17.42%.
The $3.6 billion digital financial services company changed its fiscal 2023 ending to October 31, 2023, which means a four-month final quarter. In the six months ending April 30, 2024, revenue and net income rose 22.46% and 44.56% year over year to $615.4 million and $210 million, respectively.
EQB’s president and chief executive officer (CEO), Andrew Moor, said, “The execution of our Challenger Bank strategy, guided by our approach to managing risk and allocating capital, is clearly and sustainably delivering exceptional customer and shareholder value.” Management also commenced the “Second Chance” marketing campaign.
The bank also launched the Notice Deposit Savings Account to challenge the status quo with higher savings rates and the by-invitation-only EQ Bank for small businesses as part of the continuing development of its digital banking platform.
For Chadwick Westlake, EQB’s chief financial officer, the results in the first half of fiscal 2024 reflect the business model’s ability to perform across economic cycles. He expects the strong momentum to sustain throughout the year and added that EQB will continue investing in growing shareholder value.
Top picks
CIBC and EQB should be on investors’ watchlists, if not buy lists. Both bank stocks are well-positioned to pop as the rate-cutting cycle continues toward the rest of 2024.
