Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is one of the top banks in Canada. It’s normally been a stable investment but with the stock struggling of late, its dividend yield is now at around 7%. It could be a mammoth payout for investors. On a $10,000 investment, you could be collecting $700 in annual dividends.
Rising interest rates have investors bearish on bank stocks, especially with a potential recession looming in the near future. It begs the question of whether the stock is a steal of a deal for its dividend right now, or whether it’s too risky to invest in.
Currently, CIBC’s payout ratio is around 70%, which suggests that there is a cushion there should economic conditions worsen. But CIBC has a history of navigating through turbulent waters, including the aftermath of the global financial crisis and other downturns, and yet, it has remained a solid dividend stock to own for decades.
The bank has significantly improved its operations by optimizing branches, streamlining internal processes, expanding wealth operations, and enhancing customer satisfaction ratings. Its U.S. operations are an opportunity of continued growth and diversification, which also help to bring down its overall risk.
But there are challenges for the business as a downturn in the Canadian housing market could significantly impact CIBC's future growth prospects -- although it's less likely to pose an existential threat to the bank.
Given the high dividend yield, reasonable payout ratio, and the steps CIBC has taken to enhance its core banking performance, the stock presents an enticing opportunity for income-focused investors. CIBC still looks like a great buy for dividend investors as there’s no reason to expect its payout is in any imminent danger.
