Overview:
Canadian Imperial Bank of Commerce (TSE:CM) (NYSE:CM) – also known as CIBC – is one of Canada’s “Big Six” banks. Recently, CM stock has been performing poorly compared to some of its peers, but it still has a high 6.2% dividend yield and a low valuation. It also has a 9 out of 10 Smart Score rating, indicating that it is likely to outperform the market.
Dividend History:
A Standout Among Canadian Banks Canadian bank stocks are generally known for their reliable dividends, and CIBC is no exception. The company has not missed a dividend payment since 1868, and has grown its dividend at a 6.1% compound annual growth rate (CAGR) over the past 10 years and a 5.5% CAGR over the past five years. Its current high dividend yield of 6.2% and respectable dividend growth rate make it a standout among its peers. Additionally, CIBC only paid out about 48% of its earnings as dividends in the past 12 months (with a five-year average payout ratio of 49%), indicating that its payout is safe and has room for growth.
Undervalued Stock:
To determine the CM stock price, we will use the excess returns model, which is well-suited for valuing financial companies with volatile free cash flows. This model involves calculating the excess return (the spread between a company’s return on equity and its cost of equity) and its terminal value, and adding them together to calculate the valuation. By using historical data instead of making future forecasts, this method allows us to accurately assess the value of CM stock.
Using the following assumptions for our calculations:
- Average return on equity (ROE): 14% (five-year average)
- Cost of equity: 8.4%
- Book value per share: C$52.57
- Growth rate: 3.26%
Our Verdict:
Based on the information provided, it appears that CM stock may be undervalued and could potentially be a good investment opportunity due to its high dividend yield and potential for growth. Additionally, the average price target set by analysts suggests that there is upside potential for the stock
