One of the downfalls with the recent move in North American banks is their dividend yields are becoming more depressed. It used to be easy to get 4% yields from Canada’s largest banks. It’s almost impossible now.
There’s only one major Canadian bank that still offers a yield higher than 4%, which is Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). After today’s dividend increase, shares yield 4.3%.
Many investors are nervous about CIBC because the bank is the most Canada-centric of the five major Canadian banks. All of its peers have major operations abroad -- mostly in the United States. CIBC doesn’t, although it is trying to change that.
It proposed buying Chicago-based PrivateBancorp in June. That deal is still waiting for shareholder approval, with some analysts speculating PrivateBancorp shareholders may ask for a higher price.
Operations at home in Canada are doing just fine. CIBC posted quarterly earnings of $2.89 per share, easily beating analyst expectations of $2.59 per share. Analysts project earnings will hit $10.22 per share in 2017, putting shares at less than 12 times forward earnings. That’s more expensive than a year ago, but is still cheap versus peers.
It also puts the company’s payout ratio at under 50% of forward earnings, which is exactly what dividend investors want to see.
There aren’t many stocks that yield more than 4% that have a demonstrated history of dividend growth. CIBC is one of the few that tick off both boxes. At some point won’t trade at the lowest valuation of its peers, either.
