On the Hunt for Income? Add Canadian Imperial Bank of Commerce (TSX:CM) Stock to Your Portfolio Today

Investors seeking a high yield should look to Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) ahead of its third-quarter earnings report.

| More on:

Back in March, I’d discussed whether investors should buy Bank of Montreal (TSX:BMO)(NYSE:BMO) or Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). In the article, I recommended investors go with the undervalued BMO stock. Since March 17, CIBC stock has been relatively flat, while BMO stock is up over 5%. CIBC stock has dropped 3.8% in 2018 as of close on July 26. For investors seeking income ahead of the next round of bank earnings, CIBC is my pick today.

Last year, the third-quarter earnings season sparked a surge for Canadian bank stocks, which powered the TSX to record highs. Earnings have been very positive in 2018 so far, but there is uncertainty over trade policy, Canada housing, and the impact of higher interest rates on consumers. More conservative investors may be seeking higher dividends as we look to the latter months of 2018.

In this instance, CIBC is a perfect stock. The bank last announced a quarterly dividend of $1.33 per share, representing a 4.4% dividend yield. This is the best yield out of all of the Big Six Canadian banks.

CIBC is slated to release its third-quarter results on August 23. In the second quarter, the bank posted very positive earnings across the board, particularly in its U.S. segment.

Adjusted net income climbed 26% year-over-year to $1.34 billion and adjusted diluted earnings per share rose 12% from the prior year to $2.95. Its U.S. Commercial Banking and Wealth Management segment reported net income of $138 million, which represented a 431% increase from Q2 2017. This was mostly due to the inclusion of CIBC Bank USA that began in the third quarter of 2017. Earnings have also received a boost from U.S. tax reform.

CIBC’s Canadian Personal and Small Business Banking segment posted net income of $584 million, which was up 16% from the previous year. Profits in Canadian retail banking were boosted by volume growth, improved spread with higher interest rates and higher fees. The Canadian Commercial Banking and Wealth Management segment also saw net income rise 9% year-over-year to $310 million. Capital Markets was the only segment to struggle reporting net income of $249 million, which was down 7% from the prior year.

Analysts at CIBC have projected that the bank will be forced to contend with slower growth in its mortgage book in the second half of 2018. This is something that investors should brace for across the spectrum, although higher interest rates should boost margins on loans. “When we take a look at the second half, we continue to see that there will be origination decline,” CIBC Head of Personal and Small Business Banking Christina Kramer said during the Q2 conference call. “Probably in around 50 per cent range relative to the same period last year.”

This will be something to watch for when CIBC releases its third-quarter earnings in August. For the time being the stock remains the best option among the Canadian banks for income investors.

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 aocallaghan has no position in any of the stocks mentioned.

More on Bank Stocks

calculate and analyze stock
Bank Stocks

4% Dividend Yield? I Keep Buying This Dividend Stock in Bulk!

If you find the perfect dividend stock, you never have to worry about investing again. And that's what you get…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

Let's dive into whether Canadian Imperial Bank of Commerce (TSX:CM) is a top buy, sell, or hold right now.

Read more »

Man data analyze
Bank Stocks

Where Will BNS Stock Be in 3 Years?

Bank of Nova Scotia is primed for growth with a bold U.S. expansion, steady dividends, and a value focus that…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Stocks for Beginners

TFSA 101: Earn $1,596.60 per Year Tax-Free!

Investors don't have to buy some risky stock if they want tax-free high income. Instead, buy this top stock instead.

Read more »

data analyze research
Bank Stocks

TD Bank: Buy, Hold, or Sell Now?

TD is underperforming its large Canadian peers this year. Is a rebound on the way?

Read more »

data analyze research
Bank Stocks

A Dividend Bank Stock I’d Buy Over TD Stock Right Now

TD stock has long been a strong dividend and growth provider. However, recent issues could cause investors to think twice.

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.
Bank Stocks

Where Will TD Stock Be in 1 Year?

TD Bank (TSX:TD) stock could heat up again as we enter a new year with a new manager and potentially…

Read more »

Confused person shrugging
Bank Stocks

Royal Bank vs. National Bank: Where Should You Park Your Investment Capital?

If we go by growth alone, it's easy to identify the top contender in the Canadian banking sector, but a…

Read more »