Canadian bank stocks are among the best stocks to invest in today. This is because they are the most stable out of all other banks. These banks have a wider market capitalization and make more money for shareholders compared to their international counterparts. They also have a high dividend yield, which makes them great long-term investments that generate passive income while you sleep. By choosing Canadian bank stocks over other banks, investors are more likely to receive dividends and healthy returns on their investment.
Why Choose Canadian Bank Stocks?
You would invest in Canadian bank stocks because they offer a stable investment. Bank stocks in Canada are a good long-term investment because they are completely stable, which means that they will have little stock price drops and are unaffected by the high frequency trading (HFT) market. Canadian bank stocks offer stability in the financial markets because of their low volatility compared to other banks. Furthermore, Canadian investors tend to stay with the same bank for years. This makes them a safe bet for long-term investing; neither bankruptcy nor extreme volatility are likely to happen in this market.
Bank stocks in Canada can be a complicated investment. One needs to consider everything from the macroeconomic factors, such as the state of the economy and how much money it makes, to the financials, such as EPS (earnings per share), P/E ratio, and funding. These are the main indicators of performance, but it can be simplified to dividend yield and potential for growth. If you are looking for a company with strong balance sheets but that isn’t too expensive then this article will be helpful.
Top 5 Bank Stocks in Canada
You may have noticed a trend here, bank stocks are stable and pay dividends. But what makes one stock greater than another? It would be their ability to pay and/or increase the dividend, as well as having cash to invest in further business development (Debt/Equity ratio and market cap). Check out our analysis of the 5 big banks in Canada so you can pick your most promising candidate!
Royal Bank of Canada
The Royal Bank of Canada is one of the main banks in Canada and has a market cap of $78.32 billion. It pays out dividends to shareholders at the rate of 3.86% and has a public float amounting to 472,709,838 shares (RBC). It is ranked number 1 in the top Canadian bank stock list with a SRANK score of A+ and an A.V. rank of 1, which means that it is doing well without any warning signs that its financial status might be deteriorating soon. RBC has a bad debt coverage ratio at 0.
The Royal Bank of Canada (RBC) is a good investment because it has
RBC has a strong balance sheet as it has an A+ rating with one of the top three rating agencies. It also have high dividend yield and is significantly under-valued.
This is a great company to invest in because RBC is known for its stability, profitability, and potential for growth.
TD Bank (Toronto Dominion)
TD (Toronto Dominion) Bank in Canada is another well known bank. TD Bank is the largest bank in North America and has a market cap of $79.26 billion (TD). It pays out dividends to shareholders at the rate of 4.37% and has a public float amounting to 672,986,925 shares (TD). TD Bank is ranked number 2 in the top Canadian bank stock list with a SRANK score of A+ and an A.V. rank of 1, which means that it is also doing well without any warning signs that its financial status might be deteriorating soon.
TD Bank outperforms the other banks because it has good stock price appreciation and return on equity. The bad debt coverage ratio at 0 means that its stock price is unlikely to decline because it is very stable. This is a great company to invest in because TD Bank has great potential for growth and stability in the future.
Bank of Nova Scotia (Scotiabank)
Scotiabank pays a strong dividend and have grown their balance sheet significantly in 2020-2021. Scotiabank should be on your radar because it is a large company that will be able to handle any upcoming recession. The market cap of Scotiabank is $79.98 billion (Scotiabank), but it is ranked number 4 with a SRANK score of B and an A.V. rank of 2/3, which means that it is mediocre without any warning signs that its financial status might be deteriorating soon.
Scotiabank pays a dividend of 4.66% and it has a public float of 1,109,266,854 shares (Scotiabank). This gives it a B rating for earnings per share, P/E ratio and a B rating for liquidity.
Scotiabank is an investment bank that offers great diversification and exceptional financial stability. It has over 30 years of history and it’s common to see the same CEO at many corporations. Scotiabank’s dividends have seen a 16% increase over the past 10 years.
CIBC (Canadian Imperial Bank of Commerce)
CIBC is a well-known bank in Canada with a market cap of $36.73 billion. CIBC pays out dividends to shareholders at the rate of 3.00% and has a public float amounting to 3,895,110,056 shares (CM). It is ranked number 3 in the top Canadian bank stock list with a SRANK score of A+ and an A.V. rank of 4/7, which means that it is mediocre without any warning signs that its financial status might be deteriorating soon.
CIBC has a bad debt coverage ratio at 0.78 (D/E 1.26), which means that they don’t have enough equity compared to their existing liabilities and also suggest a low level of financial risk because they don’t have high credit default risk. The dividend yield is 2.16%.
BMO (Bank of Montreal)
BMO (Bank of Montreal) is Canada’s fourth largest bank with a market cap of $59.27 billion. BMO pays out dividends to shareholders at the rate of 4.00% and has a public float amounting to 2,185,838,529 shares (BM). It is ranked number 5 in the top Canadian bank stock list with a SRANK score of B and an A.V. rank of 1. The SRANK score is also the same as that of CIBC so BMO is a close second in both variances.
The well-known named corporations are the ones that stay at the top of the list because they have a stable history and solid track record of paying dividends to shareholders. This stability allows investors to believe that their investments will be secure, thus allowing them to earn more money over the short term.
Bonus Bank Stocks in Canada
Here are some smaller market cap bank stocks which aren’t in the top 5 but are serious considerations. These banks still pay a dividend, but have a smaller market cap which makes them a little more risky.
Canadian Western Bank (CWB)
Canadian Western Bank was started in 1973 in Western Canada and has a market cap of $2.82 billion. They currently pay a dividend of 3.91% and have a public float amounting to 495,341,875 shares (CW). SRANK score is B+ and A.V. rank is 1/3 which are great scores for the financial sector.
Canadian Western Bank also has a current ratio of 1.77 which is great for a small-cap stock like CWB. Their leverage ratio of 42% is also good which increases the bank’s ability to survive future recessions. A higher leverage ratio will also reduce the amount of dividends paid out during a time when the bank has to go into more debt to survive.
It’s understandable that CWB would have a lower market cap just due to the age of the business. Banks require time to accumulate assets and gain the trust of the public.
National Bank of Canada
The National Bank of Canada is the largest bank in Canada by revenue and the 9th largest bank in North America. Their S&P ranking is 19th out of 123 banks, and they have a return on equity (ROE) of 28.7% over the last five years. The franchise makes money from the personal savings accounts (or basic savings plan) which is a great source of revenue because it gives customers an easy way to save.
The National Bank of Canada has the highest revenues because of its strong business model. The bank charges higher fees and can manage a higher volume of deposits. It also has a much larger network with 195 branches across the country.
National Bank Financial is a wholly-owned subsidiary of National Bank and is the result of the merger between Lévesque Beaubien Geoffrion and First Marathon Inc. in September 1999. With business volume in excess of $600 million, National Bank Financial has over 2,700 employees in 86 offices across Canada.
What to look for in Canadian Bank Stocks
Dividend Yield is a metric for stocks that calculates the amount of dividends a company pays to its shareholders in relation to its current share price. The higher the number, the better.
Dividends are money paid as a share of profits from one year’s worth of business operations, usually paid out on an annual basis. Dividends can be issued from any company’s cash reserves or earnings and are usually collected by those who have bought stock in that company. The dividend yield is calculated as follows:
The dividend yield is an important part of bank stocks because it provides insight into how much money can be made off dividends.
Many people don’t understand what market cap means, but it is quite simple. Market capitalization is the total money value of a company’s stock. The higher the market cap, the more valuable it is and hence, a better investment opportunity available to you if it is over or under-valued.
SRANK is a tool used to gauge the financial strength of a company and its ability to meet its debt obligations. The acronym stands for Safety, Soundness, and Rating of North American Banks. It ranks banks from von A-Z based on their regulatory capital ratios, profitability ratios, and qualitative factors such as dividend payouts.
SRANK is a useful tool for investors because it’s easy to follow and understand. Investors use the SRANK system to find banks that are not only solid under normal conditions but also will continue to be safe during unexpected events.
A.V. (Asset Value) rank in finance is an alternative to market cap. Market cap is the most commonly used method for determining the size of a publicly traded company. A company’s market cap is derived by simply multiplying a stock’s price by its number of shares outstanding. The largest companies by market capitalization are considered blue-chip stocks since they are generally well-known, financially stable, and have many years of steady performance in the past. Some investors use A.V. rank to determine the value of a firm.
A.V. is calculated by taking a company’s market cap on a higher level than what is done with market cap. For A.V., the higher level calculation used is the company’s free cash flow (FCF) estimates or EBITDA from public sources like Bloomberg or Thomson ONE, as those are generally considered more reliable than Wall Street research analysts’ estimates.
Debt to Equity Ratio
Similar to SRANK, D/E ratio determines the companies ability to pay-off short term debt with liquid assets and cash on hand. A high D/E ratio means the company may be overleveraged and unable to cover their debt obligations. Banks generally have a D/E of 1 or less, meaning they can cover their current debt obligations without issue.
Which Bank Stocks in Canada Will You Choose?
We hope you enjoyed our overview of bank stocks in Canada. Do your research to find which has the best fundamentals, but the main attraction of bank stocks is the dividend. Look to purchase bank stocks after a bear run or dip, but you will be safe to purchase bank stocks over something more risky and speculative!
Best Canadian Bank Stock
We have just released our annual list of the best online banks in Canada for 2021, and EQ Bank, Equitable Bank’s online banking division, is taking the lead in terms of “Best Online Bank in Canada 2021.” EQ, a subsidiary of Canada – headquartered in EQ Financial Corp. (NASDAQ: EQF) – is the third largest Canadian bank by assets with $1.1 billion under management, according to its latest annual report. The Bank has performed strongly in the first quarter of this year, increasing its earnings by 4.2% year-on-year. Sources: 12, 13, 15
Scotiabank is the most international Canadian bank and has been active internationally for over 100 years. With 80% of its income coming from Canada, the National Bank is the “most Canadian” bank. Have you ever worked with one of Canada’s largest banks, such as the Canadian Imperial Bank of Commerce? Sources: 10, 13
The Bank of Montreal is the fourth largest Canadian bank by assets and NYSE: BMO is the second largest bank in the United States and the third largest in Canada. The Fund aims to enhance capital and current income, but is not insured or guaranteed by Canada’s largest private equity fund, the Canadian Pension Plan Investment Board (CPIB), which was founded in 1817. Sources: 4, 14
Royal Bank of Canada, like many other major global banks, balances retail banking with investment and capital market services. It operates nationwide with offices and ATMs in Canada and the United States, as well as in Europe, the Middle East and Asia. Sources: 11, 13
Canadian banks, with a strong balance sheet and solid balance sheets, seem to have a lot to offer high-income investors. Moreover, these huge equity bankers offer decent dividend yields and are also a good source of capital for investors. Sources: 5, 9
Personally, I believe that the Canadian dividend stocks mentioned above, as well as the lesser-known Canadian dividend stocks, are a great strategy. Look for dividends – pay dividends to companies and focus on those with the highest dividend yields and best balance sheets. Also check out my top 10 Canadian dividend shares of the year and see which stocks my fellow dividend bloggers have picked for you. Sources: 1, 2
The following will be my top Canadian bank, under the name Canadian Bank of Canada (NYSE: CBA), the nation’s largest bank by market value. Sources: 3
On February 19, I gave my “Best Bank Stocks to Buy” list of the best financial stocks in the US, and this bank is one of them. The following is my Canadian bank stock by value, measured by its market value, market capitalization, and dividend yield. Sources: 12, 15
Canadian bank stocks that offer insight and worst case analysis, as well as tips on how to find the best chequings accounts in Canada. This includes a comprehensive guide to online banking for Canada, including a list of the leading online banks in the US, Canada and the US. Sources: 13
The Big Five, which include Bank of America, Wells Fargo (NYSE: WFC), JPMorgan Chase (NASDAQ: JPM), Citibank (New York Stock Exchange: C), HSBC (TSX: HSBC) and the U.S. Bank. These names include the largest banks in the US, Canada, the UK, Australia and New Zealand, as well as some operating in other countries such as Germany, France, Italy, Spain, Japan and Australia. Sources: 0, 7, 8
Canadian oil and gas stocks have had a roller coaster ride in recent years, but many still offer investors high payouts and dividends. Here are the Canadian bank stocks, and here’s a look at which of them have the potential to deliver excellent returns through 2021 and pay dividends over a very long period of time. These shares last had a slight downturn and are currently at their pre-financial crisis peak on March 9, 2021. Sources: 2, 3, 6
This stock has been slightly backtracking recently, but it is still one of the best Canadian dividend stocks you can buy. I have also included some of my favourite stocks of Canadian banks, so I recommend reading this before you read on. The National Bank has been compared with the five big banks, and I have chosen them as the share I have been offered recently. Sources: 0, 1, 2
Investors are encouraged to choose their Canadian bank shares from the RBC, TD and National Bank, as the above discoveries are made, but the safest banks to hold are TD Bank and Royal Bank. For details on choosing a bank share, read my previous article on the best Canadian bank shares of the year. The best Canadian bank this year is the National Bank of Canada, with a dividend yield of 4.5%. Sources: 3, 10
I think it’s important to identify the top 10 Canadian dividend stocks so you can continue to monitor them and press the buy trigger whenever there’s a good buying opportunity. Canadian bank stocks can be compared to other blue-chip dividend stocks if you think about adding them to your income portfolio. It is better to buy one of Canada’s top dividend stocks or a lesser-known Canadian dividend stock such as TD Bank or Royal Bank of Canada. The best dividend shares in Canada give you a better idea of which one can and will be different for each Canadian investor. Sources: 1, 2, 5
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