Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Canadian Imperial Bank in Focus
Canadian Imperial Bank (CM) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 8.27% since the start of the year. The bank and financial services company is paying out a dividend of $0.67 per share at the moment, with a dividend yield of 3.92% compared to the Banks - Foreign industry's yield of 3.36% and the S&P 500's yield of 1.59%.
Looking at dividend growth, the company's current annualized dividend of $2.68 is up 1% from last year. Canadian Imperial Bank has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.82%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Canadian Imperial Bank's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
CM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.88 per share, representing a year-over-year earnings growth rate of 8.09%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CM presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Canadian Imperial Bank of Commerce (CM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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