Which Canadian Bank Stocks Are Best?

Canada’s banks were affected by the U.S. banking crisis last spring, but more from negative investor sentiment toward banks than from the specific problems that brought down some U.S. banks and hindered many others.

In fact, the Canadian banking industry has weathered these difficult times well because it is dominated by six large, well-capitalized banks. Five of them trade on the New York Stock Exchange: Royal Bank of Canada (NYSE:RY), Toronto Dominion Bank (NYSE:TD), Bank of Montreal (NYSE:BMO), Bank of Nova Scotia (NYSE:BNS), and Bank of Canada (NYSE:BNS). Imperial Bank of Commerce (NYSE:CM).

Of course, some of these banks have performed better than others, but one of them stands out as the best. that Canadian Imperial Bank of Commerce, more commonly known as CIBC. Here’s why:

CIBC stands out

Of the five major banks, CIBC is the only one to have posted positive returns, up about 2% year-to-date. It’s also one of only two to beat analysts’ estimates in the most recent quarter.

Note: All dollar amounts are in Canadian dollars.

This week was Canadian banking earnings week, with CIBC reporting $5.8 billion in revenue for its fourth fiscal quarter, up 8% year over year and flat compared to the previous quarter. Additionally, net income was $1.5 billion, or $1.53 per share, up 25% year over year and up 4% quarter over quarter.

CIBC also increased its return on equity to 11.8% from 10.1% in the quarter and capital remained strong with its Common Equity Tier 1 (CET1) ratio increasing to 12.4% from 11.7% a year ago. The CET1 ratio is a measure of liquidity and CIBC has much more than just regulatory requirements.

For the year, the bank’s revenue rose 7% to $23.3 billion, but net income fell to about $5 billion from $6.2 billion a year earlier. The main reason is that provisions for credit losses were much higher.

In fiscal year 2023, CIBC set aside $2 billion for credit losses. This compares to just over $1 billion a year ago. That was a big chunk of revenue, but what was promising about the fourth quarter was that provisions were only $541 million, down from $736 million in the previous quarter.

The lower provisions helped CIBC beat revenue estimates in the fourth quarter. Additionally, decreasing numbers mean creditworthiness is improving as fewer customers are having trouble repaying their loans.

CIBC was also able to lower non-interest expenses in the quarter compared to the previous year, thanks to cost-cutting initiatives that resulted in a reduction of more than 2,000 full-time employees.

This reduced the bank’s overall efficiency ratio to 58.9% from 64.6% a year ago. The Canadian Consumer Banking Group’s efficiency ratio fell from 58% to 53.2%. The lower the efficiency ratio, the better. This means the company spends less to generate revenue.

huge dividends

While its Canadian banking business is its largest segment, CIBC saw solid growth in Canadian asset management and capital markets last year, with pre-arranged revenues growing in both. These are two areas the company plans to focus on in the year ahead.

“We will deliver the new fiscal with a strong balance sheet and strong credit quality as the foundation for our progress, focused on revitalizing and simplifying banking and driving growth in the mass and private wealth sectors, as well as building on our strength in the digital sector. Start the year. “We leverage our connected culture to grow our commercial and capital markets businesses,” CIBC President and CEO Victor Dodig said in his earnings report.

Another thing that really stands out about CIBC is its dividend. This rose to 90 cents per share from 87 cents per share in the previous quarter. The dividend comes with a strong yield of 6.2%. This is CIBC’s seventh consecutive year of dividend increases, and it has a manageable payout ratio.

Finally, CIBC is reasonably valued, with a forward price-to-earnings (P/E) ratio of 8.4 and a forward price-to-book ratio (P/B) of 1.09.

The Canadian economy is expected to slow in 2024, and the outlook doesn’t improve much in 2025, so don’t expect big returns. However, efficiency, growth trends and a strong balance sheet should allow CIBC to achieve its three-year goal of high single-digit annual revenue growth and outperform most of its competitors. Plus, the stock looks even better when you factor in the dividends.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.