Which of These 2 Bank Stocks Should You Trust After Q1 Earnings?

Bank of Montreal (TSX:BMO)(NYSE:BMO) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) released their first-quarter earnings this week.

| More on:

Financials were a drag on the S&P/TSX Composite Index on the final trading day of February. Earnings were released as several major banks on February 28, and the challenging economic environment took a toll in the first quarter. In February I’d warned investors that the TSX Index looked overheated.

Today we’ll look at two banks that released first-quarter earnings this week. Which is the better bet moving forward as we enter the month of March? Let’s dive in.

Bank of Montreal (TSX:BMO)(NYSE:BMO)

BMO stock fell 0.31% on February 28. Shares have climbed 15% in 2019 so far. The stock is up 5.3% year over year.

BMO released its first-quarter earnings on February 26. The bank reported adjusted net income of $1.53 billion, up 8% from Q1 2018. BMO received a huge boost from its United States Personal and Commercial Banking segment. In a January article I’d discussed how the sugar rush from U.S. tax reform was set to wear off this year. However, you could not tell from this quarter.

U.S. Personal and Commercial Banking posted adjusted net income of $454 million, up 42% from the previous year. The bank achieved this on the back of strong revenue growth and a full quarter benefit of the U.S. tax reform package, which means that future quarters may bring more tepid gains with U.S. tax reform fully baked in.

BMO’s remaining segments posted marginal gains and losses from the prior year. The bank announced a second-quarter dividend of $1.00 per share, which represents a 3.7% yield.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM)

CIBC stock fell 2.7% on February 28. Shares have climbed 9.8% in 2019 so far, and the stock is down 4.7% year over year.

The bank released its first-quarter results on February 28. CIBC saw its profit in the first quarter fall 11% year-over-year to $1.18 billion. This missed consensus estimates for the quarter. Segment performance was all over the place in Q1, with double-digit drops posted in Canadian personal and small business banking and Capital Markets. Commercial Banking and Wealth Management segments posted a 25% increase in profit in the U.S., while earnings were static in Canada.

The disappointing quarter did not prevent CIBC from raising its quarterly dividend by $0.04 to $1.40 per share, which represents an attractive 5% yield as of close on February 28. The Q1 report is the second-straight earnings miss for CIBC after years of solid beats. CIBC will be facing a challenging environment as it attempts to right the ship in the second quarter.

Which is the better buy today?

BMO had the superior quarter and announced a share buyback plan, but the stock is pricey right now. Shares of BMO boasted an RSI of 77 as of close on February 28. This puts the stock well into overbought territory to start the month of March.

The first-quarter report succeeded in pushing CIBC well outside of overbought territory. Shares have been pushed back into neutral territory and the bank boasts the highest dividend yield of the Big Six.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Bank Stocks

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »

stocks climbing green bull market
Bank Stocks

2 Undervalued Canadian Bank Stocks to Buy Now

Here's why investing in undervalued Canadian bank stocks such as BMO and EQB can help you beat the TSX Index.

Read more »

money goes up and down in balance
Bank Stocks

Is National Bank of Canada Stock a Buy for Its 3.4% Dividend Yield?

National Bank of Canada stock has surged over 1,000% in the past two decades, if we adjust for dividend reinvestments.

Read more »