The Top Dividend Stock? Bank of Montreal vs. Canadian Imperial Bank of Commerce

Top Dividend StockWith the recent market downturn, investors have been taking a hard look at their bank accounts and may be opting for safety. Bank of Montreal (TSE:BMO, NYSE:BMO) and Canadian Imperial Bank of Commerce (TSE:CM, NYSE:CM) are the smallest of Canada’s big five banks, but they are still a safe haven for income investors. However, when it comes to picking just new, which bank stock is the better dividend stock?

If you have limited funds, choosing between these two might be difficult. Let’s compare these two banking giants and see how they stack up on a variety of metrics to see which the better bet for income may be for your portfolio. Remember, as with any investment, due diligence is key.

Dividend Yield

Bank of Montreal yields 4.26%, while CM stock yields 4.86%, so when it comes to dividend yield, there is no contest. Canadian Imperial Bank of Commerce yields more than half a percentage more than BMO.

Winner: Canadian Imperial Bank of Commerce

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Dividend History

Dividend investors want to know for certain that they are going to keep receiving those dividend checks. And when it comes to dividend history, banks are a good bet, as they are known for having a long history of paying out dividends.

Bank of Montreal is Canada’s oldest bank and has been rewarding shareholders with dividends since 1829. Canadian Imperial Bank of Commerce has been paying out dividends since and 1868, respectively.

Winner: Bank of Montreal

Dividend Safety

Dividend payout ratio is a good measure to use to determine how safe the company’s dividend is. It provides an indication of how much money a company is returning to shareholders vs. reinvesting profits back into the business. If a company’s payout ratio is more than 100%, it is returning more money to shareholders than it is earning and will probably be forced to cut the dividend. Fortunately, neither bank has that problem. Both BMO stock and CM stock have payout ratios just below 50%.

Winner: Draw

Dividend Growth

Dividend investors want to see those dividends increasing at a rate that at least keeps up with inflation. During the last five years, Bank of Montreal’s dividend has an annual compound growth rate of 2.71% compared to 6.29% for Canadian Imperial Bank of Commerce’s dividend. It’s not even close here.

Winner: Canadian Imperial Bank of Commerce

Earnings Growth

Both banks must find a way to keep growing earnings if they’re going to keep fuelling their dividends. Based on analyst expectations on earnings growth for the next five years, Bank of Montreal’s and Canadian Imperial Bank of Commerce’s growth rates are 6.60% and 4.85%, respectively.

Winner: Bank of Montreal

Valuation

We also want to determine how cheap the stocks are by comparing their earnings to their share prices. Both banks are reasonably priced, but CM stock comes out slightly on top. Bank of Montreal and Canadian Imperial Bank of Commerce trade at 12.15 and 11.17 times their forward earnings.

Winner: Canadian Imperial Bank of Commerce

The Winner Is…

Both Bank of Montreal and Canadian Imperial Bank of Commerce are great picks for any dividend investor portfolio, but based on this side-by-side comparison, it’s hard to decide which is the best dividend stock, as they are evenly split. However, if you’re looking strictly for yield and earnings growth, then Canadian Imperial Bank of Commerce comes out on top. Yield and earnings growth are arguably the most important metrics for dividend investors and CM stock is higher on both accounts.