We’ve long recommended that all Canadian investors own two or more of the country’s big five bank stocks. That’s mainly because of their importance to Canada’s economy. As well, investors continue to underestimate them. As a result, they consistently trade at below-average price-to-earnings ratios.

(In the latest issue of The Successful Investor, we’ve published a special analysis of all five of Canada’s big bank stocks. One of the banks, CIBC, pays an especially attractive 4.9% dividend yield — and it could be poised for further increases. Read on for full details.)

Canada’s big five bank stocks look set to resume dividend hikes

Canada’s big five bank stocks have long histories of annual dividend increases. However, rising loan losses and writedowns of illiquid securities stemming from the 2008/2009 financial crisis prompted them to conserve cash instead of raising dividends.

Banking regulators around the world are now working on new regulations that would help avoid another crisis. The new rules will probably force banks to increase their capital reserves, which would help them better absorb future loan losses.

Canada’s banks are in much better shape than banks in other countries, so they should have little trouble adapting to the new rules, which should take effect in 2011. After that, we feel Canada’s banks will start raising their dividends again.

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CIBC’s dividend yield is tops among bank stocks

Each of the big five bank stocks have different objectives, so they’re not all suitable for every investor’s portfolio. For example, Canadian Imperial Bank of Commerce (symbol CM on Toronto), could be especially appealing to an income investor because it pays a 4.8% dividend yield. That’s the highest of the big banks. CIBC is Canada’s fifth-largest bank, with total assets of $336.0 billion.

The bank continues to profit from its plan to expand its retail-banking and wealth-management operations, which are less risky than trading securities. The bank now gets 76% of its earnings from retail banking. That’s up from 64% a year ago.

CIBC aims to spur growth by expanding internationally. For example, it recently paid $150 million U.S. for a 22.5% stake in The Bank of N.T. Butterfield & Son Ltd., which is Bermuda’s largest bank.

Thanks mainly to the improving global economy, CIBC’s revenue and earnings rose sharply in the latest quarter. As well, the bank had to set aside less cash to cover bad loans: Its loan-loss provisions fell 19.8% in the current quarter, to $316 million from $394 million a year earlier.

You can get our full analysis of CIBC and the other four big banks, including clear buy/sell/hold advice, in the latest issue of The Successful Investor. What’s more, you can get this issue absolutely free when you subscribe today. Click here to learn how.