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Given the Big Six Canadian bank stocks have corrected approximately 21% from their recent peak (using BMO Equal Weight Banks Index ETF as a proxy), it’s a no-brainer to consider buying some of these blue-chip stocks.
Particularly, I would like to direct investors’ attention to Canadian Imperial Bank of Commerce (TSX:CM). It offers a juicy dividend yield of close to 6%, which is even more attractive than Guaranteed Investment Certificate (GIC) interest income.
First, the best one-year GIC rate is going for about 4.8%. So, CIBC provides about 25% greater in income. Second, CIBC pays out this income on a quarterly basis — that is, every three months. On the contrary, a one-year GIC would pay out the income when it matures in one year. Third, CIBC’s eligible dividends, should they be received in non-registered accounts, are taxed at lower rates than interest, because of the dividend tax credit.
One thing to note, though, is that GIC is considered a risk-free investment in that the principal and interest is guaranteed. In contrast, the CIBC stock price is volatile, and it could cut the dividend as it sees fit. That said, CIBC has a solid history of paying dividends since 1868. And it has maintained a dividend-growth streak since 2011.
Higher interest rates have raised concerns about potentially triggering a recession. Consequently, the Canadian bank stock is also on sale versus historical levels. At $56.86 per share at writing, it trades at about eight times earnings. In other words, it’s undervalued by roughly 20%. CIBC also has a quality S&P credit rating of A+.
Here’s another blue-chip dividend stock that’s another no brainer buy whenever it dips.
Get more peace of mind from this dividend stock
TELUS (TSX:T) is down 21% from its 52-week high. At these levels, it should offer stability and long-term steady growth. The big Canadian telecom has increased its dividend for almost 20 consecutive years. It is inclined to extend this trend.
TELUS’s last dividend hike of 3.7% appears small. But investors should note that it tends to increase its dividend every six months or so. It follows that the annualized dividend increase is higher and more telling.
Investors can sleep well at night with TELUS stock. Through 2025, management estimates to increase the dividend by 7-10% per year. At $27.32 per share, the telecom stock yields 5.1%. TELUS has an investment-grade S&P credit rating of BBB.
TELUS managed to increase its gross margin from 58.4% in 2019 to 61.1% in 2022. However, higher operating expenses led to the operating income falling about 3.1% in the period to $2.8 billion. Consequently, net income came in at $1.6 billion in 2022.
As a result, its 2022 payout ratio was sustainable at about 74% of net income. As well, it has $4.1 billion in retained earnings that can act as a buffer. Analysts also believe TELUS stock trades at a discount of about 13%.
Investor takeaway
A discount of 20% is very decent for a blue-chip dividend stock like CIBC. It’s an easy no-brainer buy for long-term investors. TELUS is another good consideration if you’re looking for some diversification outside of Canadian banks.
