The Highest Dividend Yield of the Big Banks

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 Business Banking (44% of 2020 net income), Canadian Commercial Banking and Wealth Management (27%), U.S. Commercial Banking and Wealth Management (10%), Capital Markets (25%), and corporate (-6%).

It caters to 10 million individuals, businesses, commercial, corporate and institutional clients in Canada, the U.S. and around the world. CIBC operates through a wide network of more than 1000 banking centers, over 3,000 ATMs, as well as direct, mobile and remote channels.

Investment Data
 
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Revenue Growth & Market Exposure

CIBC is a leading North American financial institution with a market capitalization of ~$40 billion and a CET1 ratio of 11.4%. 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.

Solid volume growth across small business and commercial banking, and wealth management in the US and Canada have been driving the bank’s strong performance. CIBC is also focusing on investments in new markets and client development to generate strong loan growth.

CIBC has a strong client focused culture and operational efficiencies which aid shareholder value creation. The company has developed strong client relationships over the last 153 years which should also support growth across its 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 both digital adoption rate and active mobile users over the quarters.

In 2020, CIBC gave resilient financial performance against a backdrop of a challenging economic environment. The bank is focusing on diversifying its earnings and business by investing in Canadian and the U.S. Commercial Banking and Wealth Management platforms.

Its PCL ratio currently stands at the lowest levels when compared to the last year. The bank experienced improved balance growth in Personal & Business Banking, strong performance in Capital Markets and double-digit deposit growth in Canadian and U.S. Commercial businesses in the latest quarter. Its lending portfolio mix also remains sound. CIBC also witnessed an increased digital adoption rate as the pandemic set in.

A wide range of financial products and services, solid core businesses, strong client focus, and a disciplined capital approach are the key competitive strengths of CIBC.

Dividends

CIBC last raised its annual dividend by 4% annually. It has an attractive dividend yield of more than 5% and a high payout ratio of 71%. It is known for its highest dividend yield amongst the Big Six Candian banks.

The bank has grown its dividend by 7% compounded annually, over the last five years. It aims to pay out 40%-50% of its earnings as dividends. A CET1 capital ratio of 12.1% also allows the dividend to grow comfortably in-line with earnings.

This Canadian dividend aristocrat strives to maintain a dividend payout ratio ranging between 40% and 50%. CIBC also has an objective to deliver total shareholder return that exceeds the industry average.

CIBC’s earnings benefit from the resilience of a diversified franchise. The bank’s EPS have grown at 15%+CAGR  in the last decade. It targets an average annual EPS growth of 5% to 10% but failed to achieve the same in 2020.

CIBC continues to launch new programs and solutions to cater to the financial needs of its clients conveniently. In addition, CIBC continued to make investments in infrastructure, advisory and digital capabilities in order to attract new clients and drive growth.

The bank anticipates lower progress in its loan portfolios and deposit growth as an impact of the pandemic. It expects continued demand for business lending products and recovery in Canadian and U.S. wealth management and Capital Markets businesses.

A strong client focused franchise, diversified earnings, and strong capital structure form a deep moat around CIBC’s business. Heavy investments in transforming CIBC into a client-centric bank and establishing a strong cross-border platform should support client servicing and shareholders’ growth.

The bank is also focusing on growing its recurring, fee-based earnings within Capital markets as well as Wealth Management businesses. It should greatly benefit as the U.S. and Canada rebounds.

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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 and Royal Bank is one of Canada’s largest banks. 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.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.60116.00131.8114.3614.368.080.043.720.534744.320.110967Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.6382.46119.6512.5412.546.570.043.830.481043.160.128467Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.6179.0076.3314.8514.855.320.054.560.676743.600.105067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.55113.0058.3113.7813.788.200.043.750.517144.240.075456Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.63123.8243.9913.5513.559.140.054.720.638945.840.095967Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6185.3428.7513.8213.826.170.033.330.460342.840.101967Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.6532.182.8010.9410.942.940.043.600.394641.160.090967Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.3940.051.7415.1115.112.650.044.000.603841.600.075424Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

As a focused relationship-oriented bank, CIBC ticks all the boxes to cater to the financial needs of a modern world and should continue its dividend growth streak in the future.

It expects stronger global recovery in the latter half of the year. The bank has built a robust, high-quality commercial banking portfolio in recent years and has experienced momentum in its wealth management business as well.

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.

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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.