Canadian big banks are popular investment options for income-focused investors, including retirees, for their steady-dependable quarterly dividends. While none are immune from market volatility, all have dividend track records of over 150 years.
Central banks control, contain or battle inflation through policy rates. In Canada, rate hikes began in March 2022 (+0.25%) when the inflation rate hit 5.7% in February. The 10th and last upward adjustment was in July 2023, when inflation dropped to 3% from a peak of 8.1% in June 2022.
Remarkable recovery
Bank stocks slumped during the high-interest rate environment, but fiscal 2024 results show remarkable recovery, aided by five rate cuts since June 2024. TSX’s banking sector, particularly the Big Six, has once again lived up to its reputation as a bedrock of stability.
The giant lenders increased their provision for credit losses (PCLs) due to the anticipated financial stress on borrowers. However, in fiscal 2024, only Toronto-Dominion Bank reported a profit drop from fiscal 2023. Canadian Imperial Bank of Commerce (TSX:CM), the country’s fifth-largest financial institution, stood out. Besides the strong performance in Q4 and full-year fiscal 2024, credit quality was intact, owing to the significant drop in PCL.
Strong buy
CIBC is a strong buy, especially for wealth builders, following the impressive financial results. In the three months and 12 months ending October 31, 2024, net income increased 27% and 42% year over year to $1.88 billion and $7.15 billion, respectively.
Its president and chief executive officer (CEO), Victor Dodig, said, “Our bank delivered record financial performance in 2024 through the consistent execution of our client-focused strategy across business lines and across borders, driving growth for our bank through client relationships and delivering value for all of our stakeholders.”
For market analysts, the key takeaway for CIBC was the 22.6% drop in PCL to $419 million compared to Q4 fiscal 2023. Some banks raised theirs, although most expect provisions to moderate in the next fiscal year. Dodig expects CIBC’s momentum to carry over into fiscal 2025 due to the positive operating leverage, a robust capital position, and strong credit quality.
CIBC is also taking a measured approach to scaling artificial intelligence (AI)-powered tools. The $88.5 billion bank launched a custom-built AI platform internally, formed a Generative AI team, and developed a new Enterprise AI framework. It also plans to hire more people for data and AI roles.
The big banks see slower growth but an improved environment in fiscal 2025. However, more rate cuts would reduce the financial strain on borrowers and would stimulate the economy. Economists forecast the Bank of Canada’s policy rate to be 2.75% by April 2025 and hold steady until year-end.
Reward to investors
CIBC promptly rewarded investors with an 8% dividend increase due to higher profits, the highest bump among big banks after Q4 fiscal 2024. At $92.54 per share, current investors enjoy a +50.62% year-to-date return on top of the 4.02% dividend yield.
Like its larger peers, CIBC boasts dividend longevity. The payouts have been uninterrupted since 1868 or 156 years ago. This sterling record is why you can invest in this TSX stock today for more wealth tomorrow.
