Rising interest rates and market volatility have pushed many stock prices lower this year. That dip has helped to swell dividends to new highs. In fact, some stocks, such as Canadian Imperial Bank of Commerce (TSX:CM), now boast insane yields. Should buy CIBC stock right now?
Let’s talk about the big banks
Canada’s big banks are often mentioned as some of the best long-term investment options on the market. And there’s a good reason for that view.
The big banks have a highly mature domestic market in Canada, backed by a well-regulated and stable banking sector. That stability allows the banks to generate a reliable revenue stream, which funds growth and a respectable dividend.
In many cases, those respectable dividends have been paid out for a century or more, and investors have come to expect an annual or better bump to that payout.
So then, what are the deciding factors in determining if you should buy CIBC stock right now?
Why you should buy CIBC Stock
Let’s start with the current market opportunity. As of the time of writing, CIBC trades down a whopping 17% over the trailing 12-month period. That’s not quite at its 52-week (that was a few weeks ago), but it is still very much in discounted territory.
That discounted price comes thanks to the overwhelming market volatility we’ve seen over the past year. That includes rapidly rising interest rates, which take a toll on mortgages.
That’s where CIBC’s recent tumble comes into play. Like all big banks, CIBC has a fairly large domestic mortgage book. The key difference with its larger peers is the lack of a larger international segment to offset any domestic volatility.
In short, if the economy were to get worse or result in a lengthy recession leading to layoffs, that could cause an issue for CIBC’s mortgage book.
Fortunately, CIBC’s stock price already reflects that risk, and that dip has swelled the bank’s dividend (more on that in a moment). Perhaps more important is the fact that CIBC is still profitable and setting aside a larger amount for credit loss provisions.
Let’s not forget about that dividend
One of the main reasons why investors flock to the big banks is for the dividends that they offer. And for those investors looking to buy CIBC stock, the bank continues to impress.
CIBC offers an insane 6.70% yield, which is one of the highest across its big bank peers. It also means that investors who drop $30,000 into the bank stock (as part of a larger, well-diversified portfolio) can expect to earn an income of just over $2,000.
Keep in mind that income is just what you can earn in the first year if you buy CIBC stock. Also keep in mind that investors who aren’t ready to draw on that income can reinvest that income, allowing it to grow until needed.
And speaking of growth, CIBC provides investors with an annual bump to that dividend, and the bank hasn’t missed a payment since it started paying out dividends in 1868. That stability might be reason enough for investors to buy CIBC stock.
Final thoughts
CIBC, like all of Canada’s big banks, is a stellar pick for any well-diversified portfolio. And while they are not entirely without risk, they do offer a stable base, serious growth potential and a very juicy dividend.
In my opinion, CIBC warrants a small position in any larger, well-diversified portfolio.
