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

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »