Comparing Canada’s Banks: Is Bigger Really Better?

Royal Bank of Canada (TSX:RY)(NYSE:RY) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) are two of the hottest Big Bank stocks on the market at the moment.

| More on:

Canada’s Big Banks are some of the hottest investments on the market. Not only have they outperformed their larger peers south of the border, but in many ways, they offer some of the best-paying dividends on the market.

But which of the Big Banks are best for your portfolio? Today we’ll take a look at both Royal Bank of Canada (TSX:RY)(NYE:RY) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM)

The case for Royal Bank

Royal Bank is the largest of Canada’s Banks with a massive network of locations both within Canada and abroad. That international presence is of particular note, particularly as most of the Big Banks have turned to foreign markets to fuel growth.

In the case of Royal, the bank has operations both in the U.S. as well as in 34 other countries, including the RBC Caribbean brand, which spans 17 countries with over 1 million clients. In the U.S., Royal’s holdings include Los Angeles-based City National Bank.

That impressive international footprint provides a third of all revenue, which in the most recent quarter amounted to an impressive $3.2 billion, thereby reflecting a 6% increase over the same period last year.

An interesting point to note is that Royal’s business is highly diversified when compared to some of its peers. The Personal and Commercial segment provides just under half of the company’s earnings, while the Capital Markets and Wealth Management segments provide a further 22% and 18% of earnings, respectively. Royal’s Insurance segment and its Investor and Treasury Services segment each provide 6% of the bank’s earnings.

In terms of a dividend, Royal offers a quarterly dividend with a yield that works out to 3.87%. Royal has also offered investors a steady stream of bi-annual hikes stemming back nearly a decade. In addition to that handsome return, Royal is targeting to maintain its payout ratio between 40-50% while maintaining solid growth of near 7% for the rest of 2019.

Royal Bank currently trades at $105 at writing, just shy of its 52-week high with a P/E of 12.15.

The case for CIBC

When CIBC acquired PrivateBancorp back in 2017, investors thought the bank was finally addressing the long-standing concern of not being adequately diversified against CIBC’s large mortgage book in Canada.

Following an earnings miss in the most recent quarterly announcement last month, CIBC’s stock price dropped over 5%. CIBC reported earnings of $2.97 per share in that quarter, while analysts had been expecting the bank to post earnings of $2.99 per share.

While the stock has clawed back those losses in the past few weeks, CIBC remains priced at attractive levels.

CIBC offers investors an appetizing quarterly dividend with a yield of 5.33%, handily making the stock one of the best-paying on the market. CIBC has also maintained annual or better hikes to that dividend since the Great Recession, with the most recent uptick coming this past spring.

CIBC currently trades at just over $105 at writing with a P/E of 9.25.

Which is the better investment?

Both banks make a compelling investment case and both offer an attractive dividend and a diversified mix of holdings both within Canada and abroad.

In my opinion, CIBC remains the better investment of the two, which comes down to the higher yield and the bank being more attractively priced at the moment. Furthermore, CIBCs investments into the future should bode well for long-term investors, with the bank forecasting 5-10% EPS growth for the future.

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 Demetris Afxentiou has no position in any of the stocks mentioned.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

This 7.7 Percent Dividend Stock Pays Cash Every Single Month

This TSX income stock has been paying above-average yields for decades now.

Read more »

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 »