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.
Reviewing history, the Big 5 Canadian banks actually don’t have a high short interest, except for CIBC. The Big 5 Canadian banks are some of the most profitable businesses on the Toronto Stock Exchange.
For long-term investors who are looking for stable dividends and stable growth, it does not make sense to sell your stakes in the banks, unless you have a huge allocation, own a large stake in CIBC, or are worried about the health of the housing market in Canada. You’ve got to hold the stock to get the dividends!
We believe there’s a higher probability of slower growth or stagnant growth in the housing market than a meltdown.
Should You Sell Your Big Canadian Bank Shares?
Should you sell your bank shares? The short answer is “no” unless you own CIBC stock and are worried about the health of the housing market. Royal Bank has the least short interest, which indicates investors are finding it to be the safest bank perhaps because the bank is the leader and largest among the Big 5 and also has a focus on high net worth clients.
Here’s a longer answer to the question. Ultimately, investors should answer these questions for themselves and then make a decision on whether to buy/hold/sell accordingly:
Why did you buy the big banks in the first place? What’s your goal?
What’s your allocation in the Canadian banks or each bank?