Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) generates stable earnings, which translates to a stable stock most of the time. Stable earnings coupled with a sustainable payout ratio makes CIBC’s current yield of 5% solid.
CIBC’s stock often gives the notion that it underperforms the other Big Six Canadian banks, but as we shall see, that’s not always the case.
In the first nine months of the fiscal year, CIBC reported adjusted earnings per share (“EPS”) of C$9.07, down 1.5% against the comparable period a year ago. These are stable enough earnings and led to a payout ratio of just under 46%. As well, its return on equity fell 2% to 15.8% year over year.
Is CIBC a Buy?
Over the next 3-5 years, the other Big Six Canadian banks are estimated to experience EPS growth that will be more than twice as fast as CIBC’s estimated EPS growth of 2.2%. Therefore, the stock trades at the lowest P/E among the banks for a reason.
It’s best to consider names like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) or National Bank of Canada (TSX:NA) for long-term investment, especially on dips.
However, we’d consider buying CIBC as a trade for quick capital gains (and get the dividend in the interim) whenever it’s too cheap to ignore. At a P/E of ~9.5, we don’t think it’s at that level. (We did buy CIBC in our DGI Across North America service when it fell below C$100 for a quick profit.)
Unfortunately, we have maxed out the word limit for this excerpt. But you can read the Seeking Alpha article (with tables comparing the Big 6 Canadian banks) here: Canadian Imperial Bank Of Commerce: Stable And Safe With A 5% Yield
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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