Toronto-Dominion Bank (TSX:TD) has had one turbulent year. Numerous fines for money laundering have caused shares to plunge, and this year has been announced to be “transitionary” by the company. While for long-term investors all may not be lost, there might be another option to consider instead.
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Consider CIBC
Canadian Imperial Bank of Commerce (TSX:CM) presents a strong case as a dividend stock to buy over TD stock right now. CIBC’s forward annual dividend yield stands at 4%, with a solid payout ratio of 51.7%, compared to TD’s yield of 5.1% and a payout ratio of 93.1%. Although TD stock offers a slightly higher yield, CIBC’s more manageable payout ratio suggests better long-term sustainability for its dividends, as it distributes a lower proportion of its earnings to shareholders – thusly allowing more room for growth and reinvestment.
In terms of recent performance, CIBC’s Q3 2024 results showed a healthy profit margin of 29.6%, with a return on equity of 12.4%. The bank’s quarterly revenue growth was 19.6%, and its net income attributable to common shareholders was $6.5 billion – up by 25.6% compared to the same quarter last year. These figures demonstrate CIBC’s strong profitability and effective management.
Looking at CIBC’s market performance, the bank experienced strong growth over the past year, with a 52-week price increase of 42.3%. CIBC’s stock has also been trading close to its 52-week high of $95.50, with the most recent price at $90.08. While TD stock has experienced more volatility with a drop in its market cap from $144.7 billion at the start of 2024 to $137.4 billion, CIBC has seen its market cap steadily rise – up from $57 billion to $84.6 billion, indicating stronger market sentiment toward its growth prospects.
Future considerations
The future outlook for CIBC remains positive, with analysts forecasting steady growth. The bank’s forward price-to-earnings ratio of 11.5 is more attractive compared to TD stock’s forward P/E of 10, thus suggesting that CIBC’s stock is slightly more expensive but potentially priced to deliver better earnings growth. Moreover, CIBC’s recent investments in its core banking services and expansion into diverse markets, including capital markets and wealth management, position it for continued growth and stability.
CIBC stock has demonstrated remarkable financial discipline, with a consistent track record of delivering impressive earnings and cash flow. This is evident in its operating cash flow of $7.8 billion which, while negative for the most recent year, is part of a longer-term strategy to reposition and grow the business. In contrast, TD stock’s operating cash flow is much lower, which could limit its ability to reinvest and grow over time, further strengthening the case for CIBC.
Looking at the dividend history, CIBC has consistently paid out dividends in line with its financial growth, with a five-year average yield of 5.2%, slightly higher than TD’s average of 4.3%. This solid history of dividend payments, coupled with the bank’s prudent approach to capital management, makes CIBC a reliable dividend stock that can offer both steady income and growth.
Bottom line
Both CIBC and TD are strong players in the Canadian banking sector. Yet CIBC’s lower payout ratio, solid earnings growth, focus on efficiency, and strategic geographic diversification give it an edge over TD for long-term dividend investors. Its ability to maintain a healthy dividend while investing in future growth opportunities positions it as the more appealing choice for those seeking a well-rounded dividend stock.
