Big 5 bank CIBC: buy for growth and income

CIBC is a leading Canadian-based global financial stock with a market capitalization of about $36 billion. CIBC is a buy for long-term growth and income.

Canadian Imperial Bank of Commerce (TSX─CM) beat expectations in its first quarter. The company’s adjusted diluted earnings per share (EPS) of $2.55 easily beat the consensus forecast of $2.37. Total revenues, up 3.7 per cent to $3.6 billion from the same quarter last year, were also better than expected. Retail and Business Banking did the heavy lifting, raising its revenues 5.1 per cent to $2.2 billion, thanks to volume growth.

CIBC is a leading Canadian-based global financial stock with a market capitalization of about $36 billion. Through its three major businesses, Retail and Business Banking, Wealth Management and Capital Markets, the bank is a full financial services provider to 11 million clients in Canada and around the world.

For the three months ended Jan. 31, 2016, CIBC made $1.1 billion (adjusted), or $2.55 a share, compared with $956 million, or $2.36 a share, in the same period of 2014.

Net income (adjusted) at Retail and Business Banking rose 12 per cent to $686 million, primarily due to volume growth and strong fee-based revenue. At Wealth Management, however, net income declined eight per cent to $122 million, due to lower revenue. Similarly, income at Capital Markets fell seven per cent to $248 million, primarily caused by lower underwriting revenue and investment portfolio gains.

CIBC is a high dividend-paying financial stock

Nonetheless, the overall growth trend has let CIBC raise its dividend once again. With the release of its first-quarter results, the bank raised its quarterly dividend $0.03 a share to $1.18.

EPS growth will likely be modest over the next year or so. The bank has more exposure to Canada than most of the other big banks and that makes it vulnerable to a potential slowdown in Canadian consumer lending. The bank also has substantial Alberta exposure.

But the stock trades at 10.4 times the $9.46 a share that CIBC will probably earn in fiscal 2016. That’s slightly below its average multiple of 10.6 for the five fiscal years ended Oct. 31, 2016. And the current annual dividend of $4.72 a share yields a healthy 4.8 per cent.

CIBC is a buy for long-term growth and income.

 

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

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