Should Canadian Imperial Bank of Commerce (TSX:CM) Stock Be on Your Buy List?

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) trades at a discount to its larger peers. Is the market pricing the stock fairly?

| More on:

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is working hard to diversify its revenue stream, and those efforts might not be fully appreciated by bank investors today.

Let’s take a look at the company to see if it deserves to be in your portfolio.

Strategy shift

CIBC made important acquisitions in the United States last year in an effort to diversify its revenue stream.

The US$5 billion purchase of Chicago-based PrivateBancorp and its subsidiary The PrivateBank gave CIBC a much-needed commercial and private banking presence south of the border. The final price was significantly higher than the original offer, but the acquisition should be accretive to earnings within three years of the June 2017 closing.

Shortly after closing the PrivateBancorp deal, CIBC announced an agreement to buy Geneva Advisors, a Chicago-based private wealth management firm. The US$200 million deal closed in September. Geneva Advisors was added to the existing CIBC Atlantic Trust business, which CIBC purchased for US$210 million in early 2014.

CIBC said the Geneva Advisors deal should be accretive to earnings in fiscal 2019.

CIBC will probably take some time to digest the moves and focus on organic growth in the near term, but the company has indicated additional tuck-in acquisitions could occur, primarily in the wealth management segment.

Risks

CIBC has track a record of big blunders, including billions in writedowns on structured products during the financial crisis.

Today, investors are watching the Canadian housing market to see if that could be the next big hit for the bank. CIBC finished fiscal Q2 2018 with $203 billion in Canadian residential mortgages and $21.8 billion in home equity lines of credit.

Based on its size, CIBC has largest housing exposure of the Big Five Canadian banks.

A significant drop in house prices over a short period of time would be negative for the bank and its investors. However, the loan-to-value ratio on the uninsured mortgages runs about 54%, so the housing market would have to plunge before the bank takes a major hit.

Dividends

CIBC’s current dividend provides a yield of 4.5%. The company has a compound annual dividend-growth rate of 6.1% over the past 15 years and has not missed a regular dividend payment since 1868.

Valuation

At the time of writing, CIBC trades for 10.4 times trailing earnings, which is cheaper than the 11-13.5 times investors are willing to pay for its larger Canadian peers.

Should you buy?

CIBC probably comes with higher risk than the other banks, especially if a worst-case scenario evolves with tariffs between Canada and the United States. In the event things really get ugly, there is a possibility we could see a steep rise in Canadian unemployment, which would potentially trigger a housing crash.

That said, if you are of the opinion that Canada and the U.S. will work out a reasonable deal, and that the Canadian housing market will see a soft landing, CIBC looks attractive at the current price. The existing dividend should be very safe, and the U.S. assets help balance out the revenue stream.

I wouldn’t back up the truck, but a small investment in CIBC might be worthwhile for a dividend-focused portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »