Canadian Imperial Bank of Commerce (TSX: CM), or CIBC, is having an impressive year, with its stock up 41% in 2024. As the top-performing big Canadian bank, CM stock is far outpacing the broader market, where the TSX Composite has gained just 18.3% year to date. This surge has lifted CIBC’s market cap to nearly $85 billion, yet despite the stock’s sharp rally, it still offers an attractive 4% annualized dividend yield.
But does this combination of capital gains and income really make Canadian Imperial Bank an amazing choice for long-term investors? Let’s take a closer look at the factors driving CIBC’s strong stock performance and assess the sustainability of its dividends to find out whether this top bank stock is a buy at current levels.
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Why Canadian Imperial Bank stock is rallying in 2024
The main reason why CIBC stock is continuing to rally in 2024 is the bank’s robust financial performance, which could clearly be seen in its recent results. In the third quarter (ended in July 2024) of its fiscal year 2024, the lending giant’s total revenue jumped 12.9% YoY (year over year) to $6.6 billion due mainly to higher net interest income and strong performance across its core business segments. Its ability to drive revenue growth, even in a challenging economic environment reflects the underlying strength of its diversified business model.
Interestingly, a significant contributor to CIBC’s revenue growth in recent quarters has been its Canadian personal and business banking segment. This segment also posted a solid 26% YoY jump in its net profit last quarter to $628 million due to increased net interest margins, high loan volumes, and stronger fee income. In addition, these positive factors helped the Canadian bank to deliver a solid 27% increase in its adjusted quarterly earnings to $1.93 per share, exceeding analysts’ estimates of $1.74 per share.
Is CIBC stock a buy for its 4% dividend yield?
Another key reason for the solid year-to-date performance of CIBC stock could be a broader rally in Canadian bank stocks, which has been partly fueled by recent interest rate cuts in Canada and the United States. Investors expect these rate cuts to provide a tailwind for the banking sector by stimulating borrowing and economic activity. This scenario could help large banks like CIBC witness higher loan demand and deliver stronger profitability in the years to come.
If these optimistic expectations continue to drive CIBC stock higher, its dividend yield may not look as attractive as it is right now because yield is inversely related to the stock price. As far as its dividend sustainability is concerned, Canadian Imperial Bank’s robust cash flows, strong capital position, and consistent earnings growth could continue to give it a solid base for maintaining its dividend payouts in the future.
In addition to these factors, CIBC’s consistent focus on prioritizing customer service and investing in digital banking initiatives has the potential to accelerate its financial growth and strengthen its competitive position in the Canadian and U.S. markets, making it even more appealing as a dividend stock for long-term investors.
