CIBC – Solid but not the best bank to own

Canadian Imperial Bank of Commerce is a leading financial institution in North America. It was formed as a result of the merger between the Canadian Bank of Commerce and the Imperial Bank of Canada in 1961. 

The bank operates through its four strategic business units Canadian Personal and Small Business Banking (35% of net income), Canadian Commercial Banking and Wealth Management (23%), U.S. Commercial Banking and Wealth Management (13%), and Capital Markets (29%).

CIBC caters to 10 million individuals, businesses, commercial, corporate and institutional clients in Canada, the U.S., and around the world.

The bank operates through a wide network of more than 1000 banking centers, over 3,000 ATMs, as well as direct, mobile, and remote channels. CIBC derives ~69% of its net income from Canada, followed by 20% from the U.S., and 11% from others.

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Key Investment Data

 

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Revenue Growth & Market Exposure

CIBC is a leading North American financial institution with a market capitalization of $57 billion. The bank provides a wide spectrum of financial products and services ranging from personal, business, and commercial banking to wealth management and capital markets businesses. It also has a strong credit card portfolio providing both value and choice to its clients. 

With a 153-year long history, CIBC has successfully developed a strong client-focused culture and operational efficiencies which aid shareholder value creation. Strong client relationships should support growth across different platforms.

CIBC is investing in technology and digital platforms to meet the evolving needs of its clients and has been witnessing significant growth in digital adoption rate and active mobile users over the quarters. CIBC’s Smart business for banking, Smart banking for business is designed to help businesses integrate their banking, accounting, and payroll functionality.

Improving fundamentals across small business and commercial banking, and wealth management in the U.S. and Canada have been driving the bank’s performance. CIBC is focusing on diversified earnings growth and investments in new markets and client development to generate strong loan growth.

It is estimating to increase its share of net income from the U.S. to 25% in the mid-term from 20% currently. CIBC is favorably placed to build on the positive momentum in its North American Commercial Banking, Capital Markets, and US Private Wealth Management businesses.

Consistent investment in its business to enhance its capabilities, as well as towards modernization of platforms continues to drive strong top-line growth in Commercial Banking across North America. It is in a good position to leverage its capital markets expertise to deliver advice and solutions across the bank.

With CIBC, as a dual listed stock on the TSX and NYSE, you can choose to hold it in a Canadian or US account.

Dividends

CIBC is a Dividend Aristocrat and last raised its annual dividend by 1.4%. It has a dividend yield of 3.5% and a payout ratio of 49%. As one of the big 6 banks, CIBC has maintained a dividend payout ratio ranging between 40% and 50%.

The bank has grown its dividend by 6%+ CAGR annually, over the last five years. It aims to pay out 40%-50% of its earnings as dividends and grow its earnings by 5%-10% annually. CIBC halted share buybacks and dividend increases in response to the COVID-19 pandemic.

A CET1 capital ratio of 12.4% grants flexibility to deploy capital towards investments in business while allowing dividend growth comfortably in line with earnings. About 70%+ of CIBC’s AUM outperformed over the past five years. The bank is focusing on growing fee-based revenues, retail, and institutional net sales by enhancing client engagement with a differentiated full-service, solutions-based approach. 

CIBC is well-positioned to deepen client relationships, through cross-referrals to Wealth Management, Personal Banking, and Capital Markets. CIBC is targeting expanding its mid-market coverage and scaling its global capabilities in the capital market space. Its capital allocation will be focused on supporting clients and maintaining dividends. 

The bank does not foresee any significant M&A activity in the U.S., in the near term. CIBC continues to launch new programs and solutions to cater to the financial needs of its clients conveniently.

CIBC (CM) Historical Yield
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Competition

The Canadian personal and commercial banking segments are highly competitive. CIBC competes with other leading Canadian banks like TD Bank, Royal Bank, Scotiabank, Bank of Montreal, and National Bank.

TD Bank is one of the top ten largest financial services companies in North America. National Bank ranks amongst the six largest commercial banks in Canada, while Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

As Canada’s fifth-largest bank, CIBC is in a good position to gain from the improving Canadian housing market fundamentals.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified58.22131.18186.7713.3313.339.983.290043.900044.3210.140067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified66.9986.27156.6111.1111.116.723.660040.600043.1612.890077Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified62.4281.0398.0913.0613.066.274.440057.200043.6010.120067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified53.30127.9983.2814.0414.0410.453.310046.500044.247.550057Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified57.25149.1366.3912.5712.5712.673.920049.100045.848.550067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified59.2996.3932.6512.9812.987.752.950038.000042.849.790067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional61.4635.123.0711.0611.063.263.300036.500041.169.290077Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional37.1942.221.8511.5111.514.193.790043.500041.603.790014Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Investment in a client-focused culture and in cross-border and digital banking platforms should help Canadian Imperial Bank to deliver high-quality earnings consistently.

The bank will prioritize growth in segments expected to outperform and maintain its focus on asset quality and diversify loan and deposit portfolios. CIBC stands a good chance to capitalize on organic growth opportunities by deepening relationships in its core markets and expanding its footprint in new markets.

CIBC continues to strengthen its client-focused culture and connectivity supporting its clients. It is in a good position to leverage its capital markets expertise to deliver advice and solutions across the bank.

CIBC (CM) Historical PE
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.