CIBC’s results disappointing but it’s still a buy for its dividend yield

Following the announcement that its second-quarter profit fell by nearly two-thirds from the first quarter, the CIBC’s shares fell 1.4 per cent to $97.68 on the day its results were released.

But the drop in earnings was due mainly to goodwill impairment and loan-loss charges at FirstCaribbean International Bank, as well as several other one-time items.

Adjusting for these items, profit actually rose in the second quarter and on a year-to-date basis.

For the six months ended April 30, 2014, then, CIBC’s adjusted net income was $1.8 billion, or $4.48 a share, compared with $1.7 billion, or $4.20 a share, in the same period of 2013.

But second-quarter results from the bank’s largest segment, retail and business banking, may have been another reason the shares dropped when CIBC released its earnings.

Adjusted net income from this segment was $562 million, down two per cent from the second quarter a year ago, reflecting lower credit card revenue caused by the Aeroplan transaction with Aimia and TD Bank. Last year, you will recall, TD became the primary issuer of Aeroplan Visa after Aimia switched its allegiance from CIBC to TD.

On a fiscal year-to-date basis, however, CIBC’s net income from retail and business banking rose 12 per cent from the same period last year to $1.2 billion, thanks to higher revenue and lower provisions for credit losses.

Nonetheless, revenue growth at the segment is expected to lag those of the bank’s peers. And so are the bank’s adjusted earnings per share, which are forecasted to rise by just three per cent in fiscal 2014.

But the bank should still be able to continue raising its dividend on a regular basis, as it did when it released it second-quarter results. The quarterly dividend per share is now $1.00, up from $0.98. That brings the yield on the shares to 4.1 per cent.

Our Advice: CIBC’s dividend yield still appeals. Buy.

 

The MoneyLetter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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