1 Dividend All-Star I’d Buy Over CIBC Stock

These two dividend stocks offer up huge income, sure, but I’m not sure I’d pick CIBC stock over this other top, high-yielding option.

| More on:

While Canadian banking stocks are traditionally seen as stable investments, there are growing concerns that they may not be the best long-term option, especially for investors seeking high growth. Over the past decade, Canadian bank stocks have delivered an average annual return of around 7-8%. Which, although solid, lags behind the performance of higher-growth sectors like technology or renewable energy.

Furthermore, the Canadian banking sector faces challenges such as increasing regulation, potential economic slowdowns, and low-interest-rate environments. These can constrain profitability and growth. These factors suggest that while they may continue to provide stable dividends, long-term growth potential might be limited, especially compared to other sectors offering more dynamic growth opportunities.

What’s wrong with CIBC?

When it comes to dividend stocks on the TSX, Canadian Imperial Bank of Commerce (TSX:CM) might seem like a solid choice at first glance, especially with its forward annual dividend yield of 5.17%. However, a closer look at the numbers suggests there might be better options out there. The bank’s trailing price-to-earnings (P/E) of 10.64 and forward P/E of 9.55 indicate it’s reasonably priced compared to some peers. However, it’s worth noting that the stock’s 52-week change of 28.65% may have already priced in much of the potential upside. This makes future gains more limited.

Moreover, CIBC’s return on assets (ROA) of 0.66% and return on equity (ROE) of 11.92% might not be the most impressive when considering other financial institutions. While these figures aren’t bad, they don’t scream outperformance, especially when compared to its peers. The bank’s recent quarterly earnings growth of just 3.60% year over year also suggests that it’s not exactly a growth powerhouse. Again, this could limit future dividend hikes.

Furthermore, despite its solid profit margin of 29.25% and operating margin of 38.03%, CIBC’s negative operating cash flow of $15.28 billion might raise some eyebrows. While the bank has a hefty amount of total cash on hand, the substantial debt load of $243.74 billion can’t be ignored. So, while CIBC’s dividend is attractive on the surface, potential investors might want to dig deeper and consider whether there are other TSX-listed dividend stocks with stronger growth prospects and financials.

Power through with Power stock

When you’re hunting for a top-notch dividend stock on the TSX, Power Corporation of Canada (TSX:POW) might just be your golden ticket. With a forward annual dividend yield of 6.01%, it’s serving up a juicy payout that’s hard to ignore. But it’s not just the yield that makes this stock a standout. Its valuation is also attractive, with a trailing P/E of 8.53 and a forward P/E of 8.18. This suggests that it’s trading at a discount compared to its earnings potential. Now, it offers a combination of value and income that’s a rare find in today’s market.

Power’s financials further bolster its appeal. The company reported impressive quarterly earnings growth of 44.60% year over year. This is leaps and bounds ahead of many of its peers. This strong performance reflects the company’s ability to generate solid profits even in a challenging economic environment. With a payout ratio of just 49.53%, there’s still plenty of room for the company to continue growing its dividend. This makes it a reliable source of passive income for years to come.

Moreover, Power stock’s diversified business model and robust balance sheet add a layer of security that’s essential for any dividend investor. Despite its significant debt, the company’s total cash of $175.69 billion and a current ratio of 91.78 indicate it’s more than capable of meeting its obligations. So, while the stock price might not have soared over the past year, the steady dividend payments and strong financial footing make Power stock a better bet for dividend seekers looking for both stability and growth, especially if there is more growth to come.

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 Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

analyze data
Dividend Stocks

Here’s Why the Average TFSA for Canadians Aged 41 Isn’t Enough

The average TFSA simply isn't enough for most Canadians in their early 40s. Here's how to catch up.

Read more »

cloud computing
Dividend Stocks

Insurance Showdown: Better Buy, Great-West Life or Manulife Stock?

GWO stock and MFC stock are two of the top names in insurance, but which holds the better outlook?

Read more »

concept of real estate evaluation
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on It

Canadian REITs can turn your TFSA into a monthly paycheque machine for life. Here's how Morguard North American Residential REIT…

Read more »

A plant grows from coins.
Dividend Stocks

The Smartest Dividend-Growth Stocks to Buy With $1,000 Right Now

New dividend-growth investors should consider CN Rail (TSX:CNR) stock and another top play if they're looking to build wealth over…

Read more »

Dividend Stocks

The 3 Top Canadian Stocks to Buy With $1,000 Right Now

If you want consistent income, look to consistent dividend payers. These three stocks are some of the best in the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Want a 6% Average Yield? 3 TSX Stocks to Buy Today

These stocks pay good dividends that should continue to grow.

Read more »

chart reflected in eyeglass lenses
Dividend Stocks

Is Alimentation Couche-Tard Stock a Buy for its 0.9% Dividend Yield?

Couche-Tard stock's small yield is not enticing, but its growth potential could be a wealth creator.

Read more »

Hourglass and stock price chart
Dividend Stocks

5.2% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades!

With its 5.2% dividend yield, Toronto-Dominion Bank (TSX:TD) is a stock I'm eagerly buying.

Read more »