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Should You Buy CIBC Stock for its 6.5% Yield?

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Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

Banking stocks are some of the best to have on hand right now. They’re all down right now, some in the double digits; however, each of these banks have a history of surging back. However, Canadian Imperial Bank of Commerce (TSX:CM) has been struggling more than the others.

Shares of CIBC stock are still down about 16% in the last year, as of writing. This has created a dividend yield of 6.53% at the time of writing this article. So is it worth it? Or should investors keep to the sidelines?

Last earnings

CIBC stock actually beat out the first and second quarterly results for this year. But third quarter results were a different story. The bank reported a drop in third-quarter profit, which missed earnings estimates for the quarter. This is due to the company having to put aside even more provisions in case its customers didn’t pay back loans.

CIBC stock earned $1.4 billion for the quarter, coming in at $1.47 per share. That was down from $1.7 billion the year before, and $1.78 per share. Again, this fell well below analyst estimates of $1.69 per share.

CIBC stock stated it had to put aside $736 million in provisions for credit losses. This was higher than expected by analysts, with CIBC stock putting aside just $243 million the year before. Even so, total revenue rose 5% to $5.9 billion, though expenses also rose 4% to $3.3 billion thanks to higher employee costs.

Profit across the board was down, including in the United States as lower fee income came in, with higher staffing costs. All together, profits were up 11% on higher revenue from global markets, but still struggling.

Analysts weigh in

After earnings came out, analysts weighed in on CIBC stock earnings as well as the other banks. In the case of CIBC stock, the spike in loan losses seemed to take over what one called an “otherwise strong” third quarter.

Yet, shares fell further after the report, especially since it fell below earnings estimates. The miss, in the view of analysts, overshadowed that the company beat quarterly revenue estimates, hitting $5.9 billion instead of the projected $5.8 billion.

Even so, management did state that there could be similar provision losses at this higher end over the next few quarters. While the move does seem to be conservative to protect the company, there is an expectation that there is likely to be more moderate provisions put aside in the coming quarters.

Fourth quarter coming

Now, the fourth quarter for CIBC stock is coming. So we’ll have to wait and see if analysts are correct in seeing lower provisions for loan losses. Perhaps the view was they put aside a lump sum; therefore, they will not have to put aside as much in the near future. However, only time will tell.

Yet, there is an important point to remember. CIBC stock may be hurting from loan losses right now, but it has come back to 52-week highs within a year of hitting 52-week lows. Shares are already up about 13% from 52-week lows, with a potential upside of 23% to hit 52-week highs. And honestly, it might take a bit but CIBC is sure to hit that number once more.

For now then, long-term investors should consider picking up the stock while it’s still on this dip. You can shield your eyes for now, and look forward to that sweet 6.53% dividend yield coming in. To long-term investors, it’ll be worth it. But if you need that cash soon, perhaps wait until a recovery is well underway for CIBC stock.

The post Should You Buy CIBC Stock for its 6.5% Yield? appeared first on The Motley Fool Canada.

Should You Invest $1,000 In CIBC?

Before you consider CIBC, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in November 2023... and CIBC wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 24 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 11/14/23

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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2023