The Highest Dividend Yield of the Big Banks

CM - CIBC

Canadian Imperial Bank of Commerce is a leading financial institution in North America. It was formed as a result of the merger between the Canadian Bank of Commerce and the Imperial Bank of Canada in 1961. The bank operates through its four strategic business units Canadian Personal and Small Business Banking (45% of 2019 net income), Canadian Commercial Banking and Wealth Management (24%), U.S. Commercial Banking and Wealth Management (13%), and Capital Markets (17%).

The bank caters to 10 million individuals, businesses, commercial, corporate and institutional clients in Canada, the U.S. and around the world. CIBC operates through a wide network of more than 1000 banking centers, over 3,000 ATMs, as well as direct, mobile and remote channels. More than 200 banking centers are transformed into having advice-based conversations with clients. CIBC now has offices in 27 U.S. cities.

Investment Data

Revenue Growth & Market Exposure

CIBC is a leading North American financial institution with a market capitalization of $50 billion. The bank provides a wide spectrum of financial products and services ranging from personal, business, and commercial banking to wealth management and capital markets businesses. It also has a strong credit card portfolio providing both value and choice to its clients.

With a 152-year long history, CIBC has successfully developed a strong client-focused culture and operational efficiencies which aid shareholder value creation. Strong client relationships should support growth across different platforms. CIBC is investing in technology and digital platforms to meet the evolving needs of its clients, and has been witnessing significant growth in both digital adoption rate and active mobile users over the quarters. CIBC continues to bag higher ranks in client satisfaction and overall mobile and online banking experience amongst its peers. CIBC’s Smart business for banking, Smart banking for business is designed to help businesses integrate their banking, accounting, and payroll functionality.

Overall annual revenues increased primarily driven by favorable rates and deposit volume growth. The Personal and small business banking segment benefitted from the bank’s strategy to build a relationship-oriented bank including the modernization of its banking centers. Solid volume growth across small business and commercial banking, and wealth management in the U.S. and Canada have been driving the bank’s strong performance. CIBC is also focusing on diversified earnings growth and investments in new markets and client development to generate strong loan growth.

CIBC witnessed strong volume growth as it continues to gain market share in Commercial Banking. Fee income growth in the Private Wealth Management business supported U.S. Commercial Banking and Wealth Management business. The Canadian business also witnessed strong growth in both loans and deposits. CIBC stands a good chance to benefit from cross-border referrals as well. Strong connectivity across teams and borders led to earnings growth of 22% in the U.S.

Consistent investment in its business to enhance its capabilities, as well as towards modernization of platforms continues to drive strong top line growth in Commercial Banking across North America. The bank continues to build momentum in the U.S. strengthening its private banking and private wealth management capabilities. CIBC is also expanding into new markets. It is in a good position to leverage its capital markets expertise to deliver advice and solutions across the bank. The acquisition of Cleary Gull, a U.S. investment banking firm is expected to expand CIBC’s M&A and underwriting capabilities to middle-market clients in the U.S.

Dividends

CIBC is a Canadian Dividend Aristocrat and last raised its annual dividend by more than 2%. It has an attractive dividend yield of 5.3% and a payout ratio of 51%. CIBC has maintained a dividend payout ratio ranging between 40% and 50%. The bank has grown its dividend by 6.9% CAGR annually, over the last five years. It aims to pay out 40%-50% of its earnings as dividends and grow its earnings by 5%-10% annually. The bank is also eyeing attractive share buyback option to return capital to its shareholders and had repurchased one million common shares in the most recent quarter.

A CET1 capital ratio of 11.6% grants flexibility to deploy capital towards investments in business while allowing dividend growth comfortably in-line with earnings. CIBC has announced an agreement to sell a significant portion of its stake in CIBC FirstCaribbean the GMP Financial Group which is expected to improve CIBC’s common Tier 1 equity capital ratio by over 40 basis points upon closing.

CIBC continues to launch new programs and solutions to cater to the financial needs of its clients conveniently. Recent efforts include migration to cloud-based technologies, the transition to Workday and preparation for CIBC Square. It also Introduced the CIBC Bank USA Smart Account, giving Canadian clients a U.S. based account that links to their Canadian accounts. However, both annual net income and EPS declined 2% YoY.

Despite a highly competitive market, CIBC is making good progress as is indicated by market share expansion in three of its business units. The bank is expecting low-single-digit earnings growth for the next year and modest quarterly CET1 increases.

Competition

The Canadian personal and commercial banking segment is highly competitive. CIBC competes with other leading Canadian banks like TD Bank,Royal Bank, Bank of Nova Scotia, Bank of Montreal and National Bank. TD Bank is one of the top ten largest financial services companies in North America. National Bank ranks amongst the six largest commercial banks in Canada, while Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAristocratAchieverAmbassadorKingGraph
RYRoyal BankFinancial ServicesBanks6783.8585.709.349.349.005.1548.0044.3211.43YESNONONO1
TDTD BankFinancial ServicesBanks7057.1174.738.828.826.595.5347.9543.1613.80YESNONONO1
BNSScotia BankFinancial ServicesBanks7053.7247.118.038.036.806.7052.9443.6012.20YESNONONO1
BMOBank of MontrealFinancial ServicesBanks6267.1130.607.687.688.766.3248.4044.249.36YESNONONO1
CMCIBCFinancial ServicesBanks7877.5624.826.996.9911.227.5352.0545.8411.87YESNONONO1
NANational BankFinancial ServicesBanks6951.5417.337.927.926.515.5143.6342.8411.66YESNONONO1
CWBCanadian Western BankFinancial ServicesBanks7418.191.585.875.873.116.1636.0141.1211.31YESYESNONO1
FNFirst National Financial CorporationFinancial ServicesBanks6324.421.478.468.462.907.9967.24121.9511.14NONONONO1
LBLaurentian BankFinancial ServicesBanks5230.931.338.698.693.578.6675.0742.6813.57YESYESNONO1
EQBEquitable Group Inc.Financial ServicesBanks6454.320.914.494.4912.102.5811.5741.4010.58YESNONONO1

Bottom Line

Investment in a client-focused culture and in cross-border and digital banking platforms should help Canadian Imperial Bank to deliver high-quality earnings consistently. Rate cuts create uncertainty in a global economic slowdown which is driving moderate GDP growth. The bank should gain from its U.S. segment, which continues to execute on high touch relationship-oriented strategy. CIBC stands a good chance to capitalize on organic growth opportunities by deepening relationships in its core markets and expanding footprint in new markets.

CM vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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