Canadian Bank Stocks – Three Stock Analyses

The hottest topic as of late, that I’ve seen outside of the oil/gas industry is… Canadian Banking.  I have seen quite a few dividend investors over the last two weeks, continue to purchase shares into the big 6 Canadian Bank companies.  I also own of them, but with all of the downward pressure on the industry in that geographical location, plus all of the activity with buying happening, it has caused me to dive into some research on the fundamentals with 3 of the bank stocks.  Let’s take a look.

canadian bank stocks

Canadian Bank Stock Analysis

I am going to research and review 3 of the banks out there – Canadian Imperial (CM), Bank of Nova Scotia (BNS) and Toronto Dominion (TD).  We will review them each using the Dividend Diplomats Stock Screener tool.  This will cover a little more, as I’ll include the 5 year dividend growth rates as well for each and my illustrious 5 year average dividend yield rate Therefore, we will cover the price to earnings, dividend yield, dividend growth rate and 5 year average dividend yield.

Dividend Diplomat Stock Screener

  1. Price to Earnings: We are going to review each Canadian Bank’s P/E Ratio – compare it to the average S&P, as well as their industry in order to see if there is value underneath. Let’s take a look at the 3.  Morningstar was reporting the industry is roughly 15.80 and the S&P is currently around 19 price to earnings.  I will be using the projected annual EPS from as they have an October year-end and the estimates are going to be close if not already reported:


It looks as though all 3 stocks are undervalued and that they all fair pretty well when compared to one another as well.  What is interesting is that the Canadian banking sector hasn’t been hit throughout the financial crisis the US had undergone, but I know the rules are more stringent in Canada.  Toronto is a big area, very similar to a New York City – so I know real estate values in that market have sky rocketed.  Further, earnings pressure has been hit everywhere across banks, as consolidation of the industry is happening, interest rates are lower on loans, thus causing a squeeze on any interest income from their assets.  However, rates should begin to rise within the next 1-3 years, not by a lot, but slowly/surely they will.  Most banks have been selling off any mortgage loan that is locked/fixed in at a long-term rate, in order to avoid an interest rate shock when rates do rise.

  1. Dividend Yield: The average S&P is approximately 1.85% at the moment and we always look for something higher than this, as well as higher than 2.50% as long as growth rates are there. Let’s see how they perform:

Dividend Yield USE THIS ONE

Again – the dividend yields all look very favorable here, with Canadian Imperial taking the cake with this one – though all 3 would be great in a portfolio.  No complaints with the yield here.  But question is – can they support the yield?

  1. Payout Ratio: I typically like to see between 30 and 60% in the payout ratio department.  Let’s see what these three Canadian bank stocks can do, as it shows if they have the ability to reinvest back into the company as well as increase shareholder return:

Payout Ratio USE THIS ONE

The range of 40.64%% through 45.83% doesn’t alarm me at all and is pretty consistent with other banks that I’ve evaluated and falls within the range.  Further, they all appear to be able to pay and increase dividends, as well as strap more back into capital if they would like to improve their regulatory  capital ratios, increase their loan/security portfolios, or even better, buyback shares.  Further, EPS will continue to grow at a modest pace given the interest rate margin environment, but can continue to grow due to acquisition and consolidation of the banking industry as a whole – as they will be growing inorganically and pick up more assets that produce income that way.  Green lights all around.

  1. Dividend Growth Rate – 5 Year: Of course we like to look at the 5 year dividend growth rate and will do so on the three Canadian bank stocks we are evaluating.  We are looking for growth and to uncover layers where more weight is and what is causing a higher or lower dividend growth rate, let’s see the results:

Div growth Canadian

As you  can see, the clear winner is TD at 8.68%.  CM seemed unusually low at 2.53%, which since I own the stock in my portfolio, I wanted to see what has caused such a low growth rate, and to evaluate what it did for me from January 2014 and going to January 2015.  CM’s dividend went from $0.96 per quarter to $1.03 over that time frame, or a $0.07 increase.  This is a 7.3% increase, not too bad and definitely is appreciative given their already higher yield.  I then wanted to see what BNS from the same period and they went from $0.62 to $0.66; a $0.04 increase or 6.45%.  I remember reading about TD, however, and over the same time period – went from $0.43 to $0.47 or a 9.3% increase – favorable.  In this tough/earnings environment, all 3 have increased favorable the last year.  5 years ago I would expect little dividend growth as 2009 was the first year of crawling out of the financial crisis, almost to the point where some banks, such as JPMorgan, were not even allowed to have a dividend, let alone increase it.  2009 & 2010 are essentially very small years for bank stocks in general, as the shakiness from the whole crises put the training wheels on the industry.  Not sure what I feel about the growth rates above, just that this past year was favorable for all 3.

  1. Dividend Yield – 5 Year Average: As you all have come to find out through my stock analyses, I dive into the 5 year dividend yield average, to see how it’s performing relative to it’s average. This helps show if it’s undervalued, but also can see if dividend growth has helped with any of the stocks.  The Canadian bank stocks I would expect to track fairly close to their long-term average, as they have both appreciated at a decent rate, as well as grown at a decent rate, in terms of the dividend.

Canadian Bank stocks

As you can see above, BNS trades at a favorable mark right now, as well as TD; CM is just a smidge above their 5 year average.  With that, they all pass given the downturn in stock price and it looks as though BNS may be the favorable leading role here.

Conclusion on the Canadian bank stock analysis is tough.  Almost as if I have to play toss-up here.  Dividend yields are strong, all are fairly undervalued in the industry and the S&P as a whole and all have solid P/E ratios, as our stock screener likes to see.  The dividend growth rates are across the board and are more favorable when you look at current economic times as well.  Therefore, I will conclude on – it depends on what you are looking for – higher yield, lower growth = BNS or CM; with either or playing an okay factor and TD if you want a lower yield, higher growth rate, slightly higher P/E but with the lower payout.  What are your thoughts with these three?  This is tough to decide a particular one as CM has the highest yield, lowest 5 year track record and highest payout, but not by much with lowest P/E.  What are you seeing within the banking industry?  I know Tawcan bought BNS, as well as DivHut allocating capital there.  Any input would be incredible – and if you live in Canada – please let us know what you like!  Thanks for stopping by, talk soon.



7 thoughts on “Canadian Bank Stocks – Three Stock Analyses

  1. Thanks for the DivHut mention. I have three Canadian banks, TD, BNS and RY with CM and BMO on my watch list. These banks are all very new positions in my portfolio and are below my purchase price. I’m guessing current oil weakness will be impacting the Canadian banking sector in some fashion and I probably will be adding to those names in 2015. The large Canadian banks seem to be more robust than U.S. banks and performed quite well during the financial collapse 5+ years ago and all have been paying dividends uninterrupted for over 100 years. That has to say something. I’m curious to see how they’ll perform in the coming years in my portfolio.

    • DivHut,

      Of course – no problem! I will be adding to them as well with each market “swoon”. They performed great during the financial collapse. BNS are on my radar with CM still, even after the purchase. I love banks way too much, being a bank auditor, etc.. Talk soon DH, thanks again!


  2. Cant go wrong with the Canadian banks, Lanny. They have a long track record of weathering all storms and have maintained dividend payouts thru wars, recessions etc. The current drop in crude and following loonie does not bode very well for the banks – and we are seeing them trading at a discount. I would buy another bank or two if I had the cash.

    Best wishes

    • R2R,

      Thanks for reading the analyses – and I hope that this is just more of a macro thing than an impact on bank earnings aka I hope it doesn’t stunt any dividend item. Also – it’s not like this is the first time Oil has gone through major swings, you know? I need to stock pile cash, that’s for sure, 2014 has been a crazy year with purchases into the stock market. Thanks again R2R!


  3. Thanks for the mention. We own RY, TD, BNS, BMO, and NA. CM is the only one that we don’t own. I like BNS right now because of the international exposure. The current drop in oil price will cause the banking price to drop and create a good buying opportunity.

    • Tawcan,

      Don’t mention it! Looks like you have a few in your portfolio and I’m slightly jealous of BNS – my Aunt would be proud, that’s for sure. Would love to continue to monitor these 3 and see if I can continue to inch my way into 1 or multiple Canadian banks. Thanks again Tawcan, talk soon.


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