Over the past year, both Manulife Financial (TSX: MFC) and Canadian Imperial Bank of Commerce (TSX: CM) have posted impressive returns of around 55%. While these gains are certainly exciting, investors should keep in mind that such high returns are unlikely to repeat in the near future. So, which stock is the better choice for today’s market: Manulife or CIBC? Let’s dive in and break it down.
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Manulife: A solid bet with room to grow
Manulife stock has been on an upward trajectory after a prolonged period of sideways trading. From 2015 through late 2023, the stock essentially moved within a sideways range. However, as the company earnings slowly grew over time, the stock finally broke out in late 2023 — a classic case of valuation reverting to the mean.
Manulife’s adjusted earnings per share (EPS) over the past decade had been a strong compound annual growth rate (CAGR) of 10%. Before its recent rally, the stock was trading at a price-to-earnings (P/E) ratio of just eight, making it cheap relative to its earnings growth. Now, at around $43.81 per share at writing, the stock still offers a P/E ratio of approximately 11.5, which remains reasonable given its consistent earnings growth.
In addition to its growth potential, Manulife’s dividend yield is decent, currently sitting at about 3.7%. The company maintains a payout ratio of around 42% of adjusted earnings, suggesting the dividend is sustainable. Over the past decade, Manulife has increased its dividend at an annual growth rate of 10.9%, and the most recent hike of 9.6% further underscores its commitment to returning value to shareholders.
CIBC: A blue-chip bank that rebounded strongly
CIBC had a rough patch in 2022 due to the impact of rising interest rates at the time. The bank experienced a mild earnings decline in both fiscal 2022 and 2023, which weighed heavily on the stock. In October 2023, the stock hit a low point of around $49 per share, trading at a P/E of just 7.2, a level that many saw as too cheap to ignore.
Since then, CIBC’s stock has rebounded sharply, up approximately 86%, driven by a strong 10% growth in adjusted EPS for fiscal 2024. At $91.20 per share at writing, the stock now offers a dividend yield of nearly 4.3%. The bank recently raised its quarterly dividend by 7.8%, signalling confidence in its future earnings. With a payout ratio of about 50%, the dividend appears to be well-covered and sustainable.
Although the stock has rebounded strongly, CIBC now trades at a higher valuation compared to its historical levels. Analysts consider the stock to be fairly valued, but it doesn’t offer much margin of safety.
The Foolish investor takeaway: Which stock offers better value?
Both Manulife and CIBC have delivered solid returns over the past year, but it’s important for investors to exercise caution moving forward. Both stocks have likely priced in much of their near-term growth, and chasing gains could be risky.
Between the two, Manulife may offer greater value at its current price, given its solid earnings growth history, nice dividend yield, and, most importantly, still-reasonable valuation. CIBC, while a strong rebound story, has already seen significant upside, making it potentially less attractive at this point. For those looking for a balance of growth and income, Manulife could be the better pick — especially if you can catch it during a market pullback. Regardless, patience is key; waiting for a dip may be the smartest strategy for buying either stock at a more favourable price.
