Recent Buy – Canadian Imperial (CM)

Well I don’t think that this article should come as a surprise to too many of you.  If you couldn’t tell by my recent watch list, I was itching to buy a stock!  Time to move some cash from the sidelines and into an income producing an asset.  This week I ultimately purchased one of the four stocks on my watch list.  Here is why I decided to add to my stake in Canadian Imperial (CM).

the purchase – cm

On Tuesday, I purchased 10.1731 shares of CM at $88.86/share.  This purchase added $40.6924 to my forward dividend income.  Here is what I love.  I had a chance to continue building a position in my portfolio.  By adding $908 to my cost basis, my total position in CM is 20.3724 shares, which produces $85.56 in forward dividend income.

In my July dividend income summary, I received $10.18 in dividend income from the company and now I expect that dividend to double in October!  I’m very, very excited that I was able to sneak my purchase in one day before the ex-dividend date so I could still capture the fourth quarter dividend!  This was a huge factor in my decision when weighing investing in CM against the other four companies on my watch list.  I love that I will be receiving a dividend from this investment in the next month.  Plus, since the other companies on my watch list pay a dividend in either November or December, I still have plenty of time to add to my position and still capture their fourth quarter dividend.  All in all, the timing of this investment could not have worked out better for me.

Why did I add to my position in CM?  Well, as I summarized in my watch list article, the company crushes all aspects of our dividend stock screener.  Their P/E Ratio is near 10X, payout ratio near 50%, and the company continues to growth their dividend (announced an increase at the end of August.  One thing I did want to check out due to the fact that their P/E Ratio is significantly lower than the broader market’s P/E ratio was how CM stacked against some of the other Canadian Banks.  Is CM generally more or less expensive than their competitors?  Luckily, Lanny performed this for me back in July when he summarized his purchase of CM.  In his article, he showed that CM’s P/E ratio was in line with two competitors (TD and BNS).  Since then, the stock prices for each company have appreciated in a similar amount.  What this tells me is that CM’s current P/E ratio is in line with other companies in their industry and they are not over-valued compared to their peers.   Boom, not I’m very comfortable about the fact that this company has passed our stock screener.

Another metric that jumped out at me was CM’s strong Return on Equity (ROE).  Typically, when Lanny and I discuss bank investments, we discuss a 10% ROE target.  Well, CM’s ROE per their last earnings release was 16%.  It must be a Canadian bank thing, because all the major Canadian banks had ROE’s well above our threshold.   But it caught my eye and was a metric that has me very excited about this metric.

Lastly, after reading their third quarter report to shareholders, there were some other strong banking metrics.  Strong credit quality metrics (24 basis point loan loss ratio) and capital ratios (10.4% common tier 1 equity ratio…even after their acquisition), and a 57% efficiency ratio.  Again, there may be some difference between Canadian and US banks, but those are some strong metrics compared against what we typically see!

summary

All in all, I’m very happy with my purchase.  I didn’t have a ton of cash to invest.  However, I’m glad I was able to take advantage of this opportunity and continue to build a position in my portfolio.  I was always conflicted about what to do with this position before my last watch list.  I owned less than $1,000 of CM and received a nearly single-digit dividend each quarter.  Was it worth holding the company?  Well after some research, it turns out that the right decision was to add to my position and continue adding to this strong dividend paying Canadian bank.  The metrics were right, so this was an easy decision for me to make.  Man I cannot wait to receive my first increased dividend in October!

What are your thoughts about my investment decision?  Would you have investing in CM?  Or would you have instead opted for one of the other Canadian banks?  What other companies are on your watch list?  Have you purchased any stocks in the final week of the third quarter?

-Bert

 

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23 thoughts on “Recent Buy – Canadian Imperial (CM)

  1. Bert,

    Congrats on a nice buy. I’m hoping to get in a purchase (after a little break in investing) this week, but I have a little more research to do. I’ve been looking at O lately and want to see if it’s the right time to buy.

    Brian

      • Bert,
        (CAT) and (PG) have been on my watch list for awhile, though I haven’t looked at them lately. I’m somewhat addicted to (F) right now, and may try to pick up some more of it. I’d love to see y’all do an analysis on (F). I don’t think it would pass your screener, but it would be cool to see if y’all think it would go anywhere.

        Brian

        • Brian,

          I have both CAT and PG in our portfolio. Great companies. I know CAT has been on a tear recently though! If you look back on our website, you’ll be able to find a Ford analysis that Lanny performed. Personally, I’m not the biggest auto industry fan so I tend to stay away. But it could be another investors cup of tea and be a great investment!

  2. Not to nitpick, but you might want to multiply your forward income by 4. You’re showing quarterly dividend income and not annual dividend income.

  3. Bert,
    I am long CM, been in since the end of 2013 – its been my longest held financial stock. I have been very pleased with their performance, and the consistent 2+% raises. Nominally that is not a big %, but done 2-3 its a lot. The high starting yield and other ratios are hard to ignore. The CAN banks are all relatively conservative, compared to their US counterparts. The only disappointment I have had since owning them is tied to the fluctuation of the US and CAN dollars – so not anyone’s fault.
    Enjoy that $ Money!
    Gremlin

    • Gremlin,

      Unfortunately we cannot control the currency fluctuation. But luckily, the payout ratio is low enough and the yield is high enough where I will shrug off any short term changes in the currency flow. IT is funny to me how similar all of the Canadian banks are. Their metrics are all relatively close, which I just found fascinating. But the combo of yield, payout, ROE for CM was just too appetizing to turn down. Glad you are also an owner and we are on this ship together. See you at the next shareholder meeting haha

      Bert

  4. Bert,

    Looks like a good buy!

    I have a question not necessarily related to CM:
    How do you address the exchange risk when holding stocks that are not listed in USD? I guess CAD/USD may be somewhat correlated, but for example EUR/USD? I’m curious as part of my portfolio is in USD, but most of my expenses are in NOK. If I am to increase my USD holdings I should maybe hedge against large fluctuations in the USD/NOK rate.

    • Thanks the Beta Post. Much appreciated. I consider the exchange risk, but I choose to live with it rather than hedge it. It probably isn’t the best practice, but I think that I will benefit from exchange some years and be hurt by it and others. What is important to me is that I am comfortable with the underlying company that I own and the long term stability of the dividend. I’ll tolerate short term changes in currency under those circumstances. Hopefully that helps.

      Bert

  5. Great buy! Cibc out of the big 5 has the most downside potential of the big 5 canadian banks if the canadian housing bubble does burst. (Thats why it pulled back awhile ago) i dont think it will really burst as its now calmed down a bit but they say next real estate here will jump up again!
    Again great buy. Cheers!

    • PCI,

      Thanks for the info about the housing market. I am guessing the PrivateBancorp acquisition and their recent wealth management company acquisition were geared towards diversifying and reducing their exposure to the Canadian housing market. I was definitely a fan of their acquisition and expansion of services and footprint.

      Bert

  6. Nice buy Bert. CM has been on my watchlist, but I’m still watching to pull the trigger on a particular stock yet. I will probably be buying one or two in October now that my cash has been saved up to the amount I wanted it at. Thanks for sharing your buys and your analysis. 🙂 Nice add to your dividend income as well!

    • MDD,

      Thanks! I’m excited to see which companies you decide to add when you finally decide to pull the trigger on an investment! It is always exciting when you can move cash from the sidelines into an income producing asset or two.

      Bert

    • Thanks IH. I’ll gladly be the first person of the group to take the leap of faith. Who knows, I may be adding again in the fourth quarter if the price continues to be right. Hopefully I’ll see a purchase article of yours soon.

      Bert

  7. The only knock against them has been exposure to the Canadian housing market in particular and a domestic focus in general. These (in my mind) were significantly mitigated with the PVTB and Geneva acquisitions. They should also benefit with the prime rate increase (Canada). Plus you bought on an uptick (probably temporary) on the US dollar. Well done.

    • Charlie,

      I agree. The acquisitions were huge in my mind and were great diversification tools. Now they have pretty large operations in two different markets and management seems pretty optimistic that they are going to crush these acquisitions. Thanks as well about the note on the currency. I wasn’t paying too close of attention to the uptick of the US dollar, but I’ll pay attention next time for sure.

      Cheers,

      Bert

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