When it comes to investing in Canadian bank stocks, two names often stand out for their dividend appeal: Toronto-Dominion Bank (TSX:TD) and Canadian Imperial Bank of Commerce (TSX:CM). TD stock has long been a favourite for income investors thanks to its generous dividend yield of 4.93%. However, in the current climate, CIBC, with its slightly lower yield of 4.48%, might actually be the safer choice for those looking for dependable returns without unnecessary risk.
TD stock
TD’s recent earnings paint a mixed picture. In the fourth quarter of fiscal 2024, the bank reported net income of $3.6 billion, reflecting a 26.8% increase compared to the same period the previous year. That might sound like good news, but a closer look reveals some cracks beneath the surface. Adjusted earnings, which exclude one-time items, fell by 8%, settling at $3.2 billion. This decline suggests that TD stock’s core business isn’t quite as solid as the headline numbers imply. The bank’s revenue grew by just 5.3% year over year, indicating slower growth compared to previous quarters.
Part of TD stock’s struggle can be traced to its U.S. operations, which have become something of a thorn in its side. In October 2024, the bank faced a significant setback when it pleaded guilty to violating federal anti-money laundering laws in the United States. This admission led to a staggering $3 billion penalty — the largest fine ever imposed on a bank in U.S. history. Beyond the financial hit, the fallout from this case has been far-reaching, with U.S. regulators placing an asset cap on TD’s American operations. This cap requires the bank to reduce its U.S. assets by 10%, significantly curbing its growth potential south of the border.
These regulatory challenges forced TD stock to suspend its mid-term financial growth targets. The bank’s leadership acknowledged the need for significant investments in risk controls and compliance measures, further squeezing profitability. While TD stock remains a well-established institution with deep roots in the Canadian banking sector, the ongoing regulatory scrutiny and operational headwinds in the U.S. have introduced a level of uncertainty that can’t be ignored.
CIBC stock
CIBC seems to be steering a steadier ship. In its fourth-quarter 2024 results, the bank reported net income of $7.3 billion for the full fiscal year, with earnings per share reaching $7.40, a 10% increase compared to the previous year. Revenue also climbed 10% year over year to $25.6 billion, driven by strong growth in both net interest income and fee-based revenue. CIBC’s pre-provision pretax earnings rose by 11% to $11.3 billion, highlighting its operational efficiency and effective cost management.
CIBC’s dividend payout ratio sits comfortably at 49.45%, significantly lower than TD stock’s 86.44%. This means CIBC retains more of its earnings to reinvest in the business or strengthen its balance sheet. For dividend investors, a lower payout ratio often signals a safer dividend, as the bank isn’t stretching itself too thin to maintain shareholder payouts.
Another factor favouring CIBC is its more conservative approach to international expansion. While TD stock aggressively pursued growth in the U.S., exposing itself to greater regulatory risk, CIBC has kept its focus closer to home, maintaining a strong presence in Canada while carefully expanding into select international markets. This measured strategy has shielded CIBC from the kind of legal and operational challenges currently plaguing TD stock.
Foolish takeaway
While TD stock’s yield might look tempting on paper, the underlying risks associated with its U.S. operations and regulatory challenges cast a shadow over its dividend sustainability. In contrast, CIBC offers a slightly lower yield but with far greater stability and resilience. For investors seeking reliable income without unnecessary drama, CIBC seems like the smarter choice in today’s uncertain market.
