Canadian pensioners and other income investors are searching for undervalued dividend stocks that might be good to buy right now for a self-directed Tax-Free Savings Account (TFSA) focused on generating passive income.
Buying stocks on dips takes courage and requires the patience to ride out potential additional downside, but investors can also pick up better dividend yields and get a shot a decent capital gains on a rebound.
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CIBC share price
Canadian Imperial Bank of Commerce (TSX: CM) is down about 10% in 2025. The pullback gives investors who missed the 2024 rally a chance to buy CM stock at a discount.
CIBC has been on a bit of a rollercoaster ride for the past few years.
It trades near $81 per share at the time of writing compared to $95 in December when CIBC hit a new high after an extended rally that saw the stock double from October 2023. The strong recovery occurred after CIBC’s share price had dropped from $68 in early 2022 to below $48.
Changes in interest rates in Canada and the United States are largely responsible for the volatility. The Bank of Canada and the U.S. Federal Reserve raised rates aggressively in 2022 and 2023 in order to get inflation under control by cooling off the hot post-pandemic economy. Rising interest rates are normally positive for banks, but the steep jump over such a short period of time caused problems for businesses and households with too much variable-rate debt. This forced CIBC and its peers to increase provisions for credit losses (PCL). Higher PCL cuts into profits.
In late 2023, the central banks indicated they were done raising interest rates. Bargain hunters started to move into bank stocks in the hopes that rate cuts would be on the way in 2024. The rally picked up steam in the second half of last year when the Bank of Canada and the U.S. Federal Reserve began to reduce interest rates in an effort to navigate a soft landing for the economy.
Risks?
Things were going well until inflation started to show signs of being sticky late last year. This tempered expectations for additional rate cuts in 2025. The arrival of the tariff wars is now putting added pressure on the banking sector.
An extended recession would drive up unemployment, which would be bad news for struggling households. At the same time, businesses might be forced to pass through tariffs to consumers in the form of higher prices. This would push inflation up, making it harder for the central banks to cut rates to stimulate economic activity.
CIBC could retest the 12-month low around $64 if things get really ugly in Canada. The bank has a large exposure to the Canadian residential mortgage market relative to its size. Roughly two million fixed-rate mortgages taken out at very low rates in 2020 and 2021 are coming due in Canada in 2025 and 2026. Renewals will be at rates that are higher. If unemployment surges, CIBC could see defaults rise more than is currently anticipated.
Time to buy CIBC?
Investors need to be careful in the near term until there is more clarity on how the tariff situation will play out. That being said, CM stock should be a solid long-term pick, and you get a decent 4.7% dividend yield right now to wait for the rebound. Contrarian investors might want to start nibbling on the pullback and then look to add to the position on any further downside.
