Growing your TFSA (Tax-Free Savings Account) beyond the average Canadian holding is a fantastic goal and can set you up for significant long-term financial security. The average TFSA balance among Canadians was around $41,510 in 2024, with individuals approaching retirement often amassing over $150,000. While these figures are a good starting point, surpassing them requires a combination of disciplined saving, savvy investing, and leveraging the tax-free benefits of the TFSA.
A key way to grow your TFSA is to invest in dividend-paying stocks, and a standout candidate for this strategy is Canadian Imperial Bank of Commerce (TSX:CM). CIBC, one of Canada’s largest and most established banks, has consistently provided solid returns for investors. With a forward annual dividend yield of 4%, this stock offers a reliable combination of income and growth potential.
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Why choose CIBC?
CIBC is a compelling option for TFSA investors due to its strong financial performance and stability. The bank’s recent earnings underscore its resilience and profitability. For the fourth quarter of 2024, CIBC reported adjusted net income of $1.9 billion, significantly up from $1.5 billion in the same quarter the previous year. This increase was supported by a 22.5% reduction in provisions for credit losses, highlighting improved credit quality. Overall, the bank’s profit margin sits at an impressive 29.6%, showing it’s a well-managed institution with the ability to weather economic challenges.
In terms of historical performance, CIBC has navigated recent economic challenges well, including difficulties earlier in 2024 related to its United States office portfolio. By focusing on higher-quality lending and maintaining a disciplined approach to risk management, the bank managed to turn things around. For instance, in the third quarter of 2024, net income for its U.S. commercial banking and wealth management business surged by 187%.
Today’s advantage
In addition to its growth initiatives, CIBC’s valuation metrics indicate that the stock remains attractively priced. With a forward price/earnings (P/E) ratio of 12.3 and a price-to-book ratio of 1.7, CIBC is trading at reasonable levels compared to its historical averages and peers. This makes it a great time for long-term investors to consider adding the stock to their portfolios.
Plus, CIBC’s dividend history is another reason to consider it for your TFSA. With a current annual dividend payout of $3.60 per share, the bank offers a consistent and attractive income stream. Dividends are particularly valuable in a TFSA because they grow tax-free, allowing your wealth to compound without the drag of taxation. Over time, reinvesting those dividends can significantly boost your portfolio’s growth, even if you start with modest contributions.
Moreover, CIBC has a payout ratio of 51.7%, which suggests its dividends are sustainable. The bank’s long track record of paying and growing dividends underscores its commitment to returning value to shareholders. For TFSA investors looking for income stability, this is a significant advantage. Growing your TFSA is not about quick wins but consistent, disciplined investing. By regularly contributing to your TFSA and reinvesting dividends, you can take full advantage of compound growth. CIBC’s reliable dividends and strong performance make it an excellent core holding, but pairing it with other investments can further enhance your portfolio.
Bottom line
CIBC is a standout choice for TFSA investors looking to grow their savings beyond the average Canadian balance. Its strong financial performance, attractive dividend yield, and promising outlook make it a compelling option. Combined with the tax-free benefits of a TFSA, investing in CIBC can help you achieve long-term financial success. Just remember to stay diversified and keep your contributions consistent to maximize the growth potential of this powerful savings tool.
