The acquisition of a Chicago-based bank in 2017 has steadily boosted profits at this Canadian bank. It recently raised its dividend, which yields a high 5.3%.
That dividend is fuelled by solid earnings growth and a strong outlook for 2019. Still, the bank’s shares trade at a very low 8.2 times this year’s forecast earnings.
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CANADIAN IMPERIAL BANK OF COMMERCE $103.03 (Toronto symbol CM; www.cibc.com) is Canada’s fifth-largest bank with assets of $597.1 billion.
CIBC paid $6.6 billion in cash and stock to acquire Chicago-based PrivateBancorp Inc. in June 2017. That firm mainly lends to small and mid-sized businesses. It also provides wealth management services. The additional revenue from PrivateBancorp has helped CIBC offset slowing demand for new mortgages in Canada.
If you exclude costs to integrate the acquisition, the bank’s overall earnings for the three months ended October 31, 2018, rose 8.0%, to $1.36 billion from $1.26 billion a year earlier. Due to more shares outstanding, earnings per share increased at a slower rate of 6.8%, to $3.00 from $2.81. However, that missed the consensus estimate of $3.04.
Earnings from Canadian retail banking (49% of the total) jumped 21.2% in the quarter due to higher interest rates and fee income. The Canadian commercial banking and wealth management business (24%) reported 16.0% higher earnings. That gain is due to strong demand for business loans and an increase in the unit’s assets under management. CIBC’s U.S. operations (10%) saw earnings rise 22.4% due to the PrivateBancorp acquisition. As well, earnings from securities trading (17%) improved 5.0% on higher trading volumes.
Blue Chip Stocks: Following October increase, dividend yields 5.3%
Overall revenue in the quarter increased 4.3%, to $4.45 billion from $4.23 billion a year earlier. Loan-loss provisions rose 15.3%, to $264 million from $229 million. That’s mainly due to additional provisions at CIBC’s Caribbean operations after the Barbados government said it would restructure its debt held by CIBC and other foreign lenders.
In August 2018, CIBC joined a consortium of investors (including Air Canada and Toronto-Dominion Bank) that has agreed to buy the Aeroplan loyalty program from Aimia Inc. (Toronto symbol AIM) for $450 million. The buyers will also assume $1.9 billion of Aeroplan Miles liability (the points unused by its cardholders).
The bank has yet to reveal its share of the purchase price. However, it already issues Aeroplan credit cards, so this purchase would let it continue to expand that profitable operation.
The stock trades at a low 8.2 times the $12.55 a share that CIBC will probably earn in fiscal 2019.
The bank also continues to increase its dividend. Starting with the October 2018 quarterly payment, investors now receive $1.36 a share, up 2.3% from $1.33. The new annual rate of $5.44 yields a high 5.3%.
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