Investing in CIBC bank stocks (Canadian Imperial Bank of Commerce) (2024)

Commonly known as CIBC, the Canadian Imperial Bank of Commerce is Canada’s 5th largest chartered bank. While it sits at the last spot of Canada’s Big Five banks, does CIBC’s standing mean that it’s a viable investment, particularly when it comes to choosing CIBC bank stocks?

Investors should remember that merely looking at a Canadian bank’s standing in its industry is not the only metric that they must base their investment decision upon. When investing in bank stock (or any type of stock for that matter), investors should look at the most important indicators first before taking the plunge. So, what are these stock indicators? Is CIBC a good stock to buy?

WealthProfessional seeks the answers to these and more in this article, so let’s dive right into it.

CIBC bank stock indicators

Given that these are the indicators that investors should consider, let’s look at CIBC’s stocks to determine if they’re worth investors’ time and money:

CIBC Market Cap: $44.58 billion

As of April 2024, CIBC has a market cap of $44.58 billion. While CIBC has the lowest market cap among Canada’s Big Five banks, that is no slouch for the banking industry. Let’s look at CIBC’s market cap performance for the past 5 years:

From the table, we can see that CIBC’s market cap has seen a couple of dips in the past few years, most notably in 2022. This was largely due to fears of low diversification due to high exposure in the Canadian housing market. And as the pandemic ravaged the Canadian economy in 2022, housing prices and rent skyrocketed, placing many mortgagers and renters in default. This is what likely shrunk CIBC’s market cap.

The good news is that CIBC bounced back and has only recently had a small hiccup that reduced its market cap slightly. Historically, CIBC’s resilience shows that it can be a good stock in terms of its market cap, but investors should note its sensitivity to upsets in the Canadian housing market.

CIBC P/B Ratio: 1.15 (April 2024)

CIBC has a low P/B ratio, which makes it a favorable investment. This means that investors may be paying less than the actual value of the stock.

CIBC P/E Ratio: 13.1 (April 2024)

With a P/E ratio that’s lower than the industry average of 20 to 25, CIBC stock appears to be a viable investment. A company with a low but positive P/E ratio means that it is generating high earnings compared to their current valuation and the stock may be undervalued. Conversely, a company with a high negative (or close to 0) P/E ratio means that the company is not profitable, incurring heavy losses compared to its current valuation.

CIBC Dividend Payout Ratio (DPR): 31.62%

Since the industry average for a good DPR is at around 30 to 50%, CIBC’s DPR is in a good spot. This indicates that the dividends that CIBC pays are well-covered by its earnings. Note that a company that has a DPR above 50% or more may not be sustainable.

CIBC Dividend Yield: 5.42%

In many instances, a dividend yield is deemed viable and sustainable if it’s in the range of 5-6%, so CIBC’s yield is about average. A dividend yield that is in double digits would mean that the company is not paying out dividends in a sustainable manner and could be unstable.

Are CIBC bank stocks worth investing in?

Savvy investors may tell you that CIBC bank stocks have slightly higher volatility than the stocks of the other Big Five banks of Canada. This is because CIBC has greater investment and exposure to the Canadian housing market, which was not very good during the pandemic. However, the housing market is predicted to have better prospects in 2024.

Whether investors should put their money into CIBC bank stock now largely depends on the individual investors’ goals and risk appetite.

Here’s a video that talks about the Canadian bank stocks that investors may want to “buy and hold forever” due to their long-term value. CIBC appears to have the potential of a yearly growth rate of 3% according to the presenter. While this sounds plausible, do note that past performance of an investment is not necessarily a reliable indicator of future performance. A sound strategy may be to build a portfolio that consists of a mix of all these stocks.

Investors should remember that CIBC recently made it into the list of Canadian bank stocks worth investing in. And as of 2023, the CIBC bank stock dividends were increased at least twice, so the bank’s board of directors appears confident of its earnings.

As per CIBC bank stock’s metrics, they look good on paper. But Wall Street analysts would point out CIBC stock’s main caveat: it can be riskier than the stocks of other Big Five banks.

So, with CIBC bank stock, is it buy, sell, or hold? Given the cyclical nature of the banking industry, its stocks also go through a period of ups and downs. Now that CIBC stock seems to be increasing its dividends, this can give a bit more liquidity to investors’ portfolios.

A short history of CIBC

CIBC is the result of what is still deemed the biggest merger of two chartered banks in Canadian history. The Canadian Imperial Bank of Commerce was created in 1961, thanks to the merger between the Canadian Bank of Commerce (established 1873) and its older co-merger, Imperial Bank of Canada (founded in 1867).

CIBC is one of two Toronto-based banks that are part of the Big Five banks of Canada, the other being Toronto-Dominion Bank (ticker code TD).

Here’s a rundown of some of CIBC’s notable achievements in its long history:

• 1867 – The Canadian Bank of Commerce was founded by William McMaster on May 15, 1867, in Toronto to challenge the Bank of Montreal (BMO).

• 1874 – Canadian Bank of Commerce expanded into 24 branches.

• 1875 – On March 18th of that year, former Canadian Bank of Commerce VP Henry Stark Howland establishes the Imperial Bank of Canada.

• 1895 – Canadian Bank of Commerce had expanded to 58 branches, while Imperial Bank of Canada opened 18.

• 1896 – The Yukon gold rush prompts the Dominion Government to request that CBC open a branch in Dawson City.

• 1920s – This decade was a booming period for Candian Bank of Commerce, as many other acquisitions made the bank into a strong network comprised of more than 700 branches locally. During this same period, Canadian Bank of Commerce established its international network with branches in Barbados, Cuba, Jamaica, and Trinidad.

• 1936 – Canadian Bank of Commerce becomes the first bank in Canada to offer personal loans.

• 1961 – The Canadian Bank of Commerce and Imperial Bank of Canada merge and form the Canadian Imperial Bank of Commerce. The merger creates a combined network of over 1,200 branches across the country and CIBC becomes the bank with the most branches and the most resources.

• 1967 – CIBC becomes the first bank to offer a 24-hour cash dispenser, many decades before even the first ATMs are introduced.

• 1995 – CIBC launches its website and online banking services.

• 2010 – CIBC is the first to offer mobile banking services via an iPhone app.

Looking at CIBC’s long history shows no major upheavals or controversies. A lot of their notable milestones are consistent growth and innovation. This is important to look at in a bank stock, as it can signify to investors that the bank is stable and consistent in its path towards long-term growth.

The history can also hint at its resilience; despite losing business in Cuba due to the Cuban revolution, CIBC still has a strong presence in the Caribbean.

What are the indicators of a good bank stock?

These are the key indicators or metrics that investors should check before considering putting money into a bank stock. These include the following:

Market Capitalization – Also known as the market cap, this is the total value of a company’s shares of stock. The market cap is an excellent indicator of a company’s standing in its respective industry.

This can also give investors a better idea of how a company fares in its industry, relative to its competitors.

This is the formula for computing the market cap:

Market cap = total outstanding shares x share price

Price to Book (P/B) Value Ratio – The P/B ratio is one that compares the current market capitalization of a company with its accounting value. A stock is considered a good investment if it has a low P/B ratio, meaning that the stock is undervalued, and investors could be paying more than the stock’s actual worth.

Formula:

P/B value ratio = company’s stock price per share ÷ book value per share

Earnings Per Share (EPS) -- Is the indicator of how much a company earns from each share of stock. In most cases, the EPS is considered a reliable standard by which investors can gauge a company’s value.

The EPS formula is:

EPS = (net income – company's preferred dividends) ÷ number of outstanding shares

Price to Earnings (P/E) ratio – This ratio is an indicator of whether the company’s stock price is higher or lower compared to the company’s revenues.

The formula to get the P/E ratio is:

P/E ratio = current share price ÷ earnings per share (EPS)

Dividend Payout Ratio (DPR) – Indicates how much a company pays in terms of dividends compared to its stocks’ earnings. The DPR lets investors know about a company’s earnings and the degree at which the company can cover its dividend payments.

The formula for DPR is:

DPR = annual dividend per share ÷ EPS

Dividend Yield – is the amount that a company pays as compared to its stock price. Companies can make this payment annually, but it’s not uncommon for some companies to give out quarterly dividends.

Dividend yield = annual dividend price per share ÷ price per share

Should you invest in CIBC bank stocks

A good strategy would be to invest in some CIBC stocks but also invest in additional stocks of the other big banks who are more stable and have less volatility. Investors can mix it up with stocks of Toronto-Dominion Bank or even Royal Bank of Canada.

CIBC appears to be doing better, so depending on individual investor’s goals and risk tolerance, it can be more of a moderate buy now. It may be beneficial to buy CIBC stock for building and diversifying portfolios in the long term. Meanwhile, those who already have CIBC stock can hold onto the shares they have.

What do you think of CIBC bank stocks? Would you invest in CIBC now or go with stocks of the Big Five?

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