Canadian Bank Stocks To Buy Now – 5 Key Blue Chip Stocks

Canadian Bank Stocks

Regardless of your investment philosophy, most Canadian retail investors will have one thing in common when it comes to their portfolios; they include Canadian bank stocks.

If you are looking for growth, or income, Canadian banks have rewarded investors and will continue to do so for years to come. They are the backbone of Canada’s stock market and among them are some of the safest blue chip companies in the world. We looked for Canadian bank stocks that pay dividends, have consistent growth, and a solid foundation in this guide.

Why Canadian Bank Stocks?

For starters, the Canadian banking market is highly regulated and as such, there are massive barriers to entry. The Big “5” being:

  • Bank of Nova Scotia
  • Bank of Montreal
  • CIBC
  • Royal Bank
  • TD Bank

are incredibly important to the Canadian economy as are some of the smaller regional players such as National Bank of Canada and Western Bank.

A Canadian bank stock can serve as a cornerstone of one’s portfolio, is low-risk, provides growth and a steady income. After weathering the financial crisis better than most all world-banks, the Canadian banks were also among the first to re-instate a rising dividend.

On top of historical performance, the banks are currently enjoying some tailwinds which have the potential to propel the sector even higher. The Canadian economy is growing at a fairly good clip, good enough for the Bank of Canada to start rising interest rates, twice in the past 6 months.

But anyways, lets get down to the brass tacks. Here are the top 5 Canadian bank stocks you can buy right now. Along with our opinions on these stocks, Mike McNeil from The Dividend Guy Blog and Dividend Stocks Rock has decided to provide some input on Royal Bank and his favorite bank right now in Canada. Enjoy!



Stocktrade’s best Canadian bank stocks to buy now


5. Bank of Montreal

Canadian Bank Stocks #5 - BMO

BMO Kicks off our list of the best Canadian bank stocks in 2018

Price On Q1 Update: $101.18
Price As Of March 17th 2018: $98.71
Ticker: BMO.TO
Sector: Banking
P/E: 13.84
EPS: $7.13
Market Cap: $63.72 Billion
Dividend Yield: 3.77%
Click here to see their chart and opinions

Kicking off our list of the best bank stocks in Canada is BMO. The Bank of Montreal has the longest dividend streak in Canada spanning almost two centuries at 188 years.

The feat is incredible and speaks to both their longevity and consistency. Much like their peers, they have begun raising dividends once again after successfully navigating the financial crisis.

They derive the majority of their revenue from Canadian operations (68%) and the US (25%).

One important aspect to note is that BMO is the least exposed among the big 5 to the Canadian housing market. With so much talk of a potential housing crash, BMO is ideally situated to navigate any downturn in the housing market.

Furthermore, the bank is currently looking to rapidly expand its US operations with plans of expansion into Southern California and Ohio.

One downside, is the company has the weakest efficiency ratio among the big 5 at 60% and is on pace for the slowest growth among the big 5 according to analysts.


4.Bank of Nova Scotia

Best Canadian bank stock to buy today - #4 Scotiabank

Scotiabank hits #4 on our list of the best Canadian bank stocks to buy now

Price On Q1 Update: $84.21
Price As Of March 17th 2018: $82.10
Ticker: BNS.TO
Sector: Banking
P/E: 12.17
EPS: $6.78
Market Cap: $98.871 Billion
Dividend Yield: 4.00%
Click here to see their chart and opinions

4th on our list of the top Canadian bank stocks is Scotiabank.

The Bank of Nova Scotia is perhaps Canada’s most innovative bank and has been first to market with many online initiatives. They have 70% digital penetration from their customers, and 50% of retail sales were generated digitally.

Although dividends have been rising, they also have the highest payout ratio among the big 5 at 63%.

BNS’ is perhaps most impacted by their international segment with operations in Asia, Latin America, and the Caribbean. The company expects 10% growth in this segment driven primarily by their Pacific Alliance countries (Mexico, Peru, Chile, and Columbia).

Another point for investors to note, BNS may be one of the banks most exposed to a potential housing crash as the majority of their mortgage loans are held in Toronto and Vancouver.


3.RBC Royal Bank

Best bank stocks Canada - #3 Royal Bank

In terms of the best bank stocks in Canada, Royal Bank falls in at #3

Price On Q1 Update: $102.85
Price As Of March 17th 2018: $102.29
Ticker: RY.TO
Sector: Banking
P/E: 13.48
EPS: $7.59
Market Cap: $147.752 Billion
Dividend Yield: 3.68%
Click here to see their chart and opinions

Third on our list of the best Canadian bank stock to buy today is the Royal Bank.

Royal Bank is Canada’s largest bank by market capitalization and is also the most diversified with operations worldwide. That being said, RBC is still very dependent on the Canadian customer with 61% of revenue originating from Canadian operations.

They have captured the highest market share in several Canadian retail banking products including Personal Lending, Total Mutual Funds, Business Loans and Deposits. Over the past 5 years RBC has outperformed its peers with its share price returning 81.5% or 16.3% on annual basis.

The company continues to deliver a rising dividend and has the exact same targeted payout ratio as TD at 40-50% of earnings. As of today, their payout ratio is just shy of 50% at 49.7% and as such future dividend increases will be most likely tied directly to earnings growth.

Mike: Royal Bank is the largest bank of the group by market cap, and provides various financial services to individuals as well as commercial and institutional clients. RY has a strong position in the personal and commercial banking sector (50% of its revenue). In 2015, RY bought City National, a Los Angeles-based bank focused on high net worth clients. The transaction opened US doors and another growth vector: wealth management.

The Canadian banking system is one of the most robust and safe in the world. Having the chance to invest in a leader in such a market is a no-brainer. Royal Bank shows a great balance in revenue source with a 50% core business coming from P&C and counting of various growth vectors such as wealth management, insurance and capital markets.



2. Canadian Imperial Bank of Commerce

Canada bank stocks - #2 CIBC

#2 on our list of the best Canadian bank stocks to buy today is CIBC

Price On Q1 Update: $123.48
Price As Of March 17th 2018: $117.75
Ticker: CM.TO
Sector: Banking
P/E: 10.91
EPS: $10.74
Market Cap: $52.07 Billion
Dividend Yield: 4.42%
Click here to see their chart and opinions

The runner-up on our list of the best Canadian bank stocks is CIBC. CIBC is currently the most undervalued Canadian bank trading at P/E of 10.24 as compared to about 13 for the rest of the banks on this list.

The company also sports the highest yield of the group with an attractive 4.62% to go with its 147 year dividend streak. In terms of Canadian bank stocks that pay dividends, they are one of the best.

The company has been expanding its US operations through acquisition. They recently acquired Private Bancorp and have announced their intent to acquire Geneva Advisors, a wealth management company.  Their growth through acquisition south of the border increases the company’s risk (CET1 Ratio decreased to 10.4% following Private Bancorp), but also positions them for outsized returns given current valuations.


1. TD Canada Trust

Canadian bank stocks 2018 - #1 TD Bank

The winner of our best Canadian bank stocks list for 2018 is TD Bank

Price On Q1 Update: $72.85
Price As Of March 17th 2018: $75.92
Ticker: TD.TO
Sector: Banking
P/E: 14.00
EPS: $5.42
Market Cap: $140.086 Billion
Dividend Yield: 3.52%
Click here to see their chart and opinions

The winner of our best Canadian bank stocks is TD. TD Canada Trust is a leading North America bank who is ranked #1 in Canada and 5th in North America in terms of total assets and total deposits. The company is ideally positioned to take advantage of rising interest rates on both sides of the border.

Over the past 5 years, the company has an earnings compound annual growth rate of 8.4% and has a medium term earnings growth target of 7-10%.  The company also has a rising dividend, and their 3YR (10.1%), 5YR (10.6%) and 10YR (9.3%) are the highest growth rates among all of Canada’s big 5 banks.

Their targeted dividend payout ratio is 40-50% which is good news for investors as their current payout ratio is 45% leaving ample room for future dividend growth.

National Bank(NA.TO) a favorite of Mike’s

Mike: My favorite bank is the smallest of the Big 6 : National Bank (NA.TO). National Bank is very small compared to the big 5 Canadian banks. As the sixth largest one, NA is mostly in Quebec with 62% of its revenues earned in this province. Its smaller size is currently paying off as National Bank was quicker to develop a strong brand in Wealth Management with Private Banking 1859, and built a highly profitable Financial Market division. National Bank is the bank with the smaller risk in the event of a Canadian housing market crash as their loan portfolio is mainly in Quebec. Since the bank is small and flexible, it has the ability to move faster than its peers. It’s not a coincidence NA offers better total investment results over the past 3, 5 and 10 years compared to its peers.

What should I look for when picking Canadian Bank stocks?

We alluded to it earlier, but there are two main groupings of Canadian banks, the Big 5 and the smaller regional players. The Big 5 are not only the largest Canadian bank stocks by market capitalization, but they also have operations south of the border and many have international operations.

On the other hand, the regional banks are mainly focused on the Canadian market with little to no international operations.

Interest rates are always a hot topic and rising interest rates are a positive for banks. Rising rates result in a larger spread between lending rate to customers and the rate to which it pays its debtors.

As a result, they have a positive impact on profitability as net interest income (NII) margins rise. Banks in which retail earnings account for a high percentage or income will be best positioned to benefit.

Could rising interest rates hurt the outlook of Canadian bank stocks today?

On the flip side, there is the risk that rising interest rates will result in greater loan defaults. It’s no secret that ultra-low interest rates have led to a significant amount of borrowing and Canadians are now more indebted than at any other point in history.

Of particular concern is Canada’s housing market. Pundits have been calling for a housing crash for years as low rates have sparked home prices to rise significantly, especially in the Vancouver and Toronto markets. The concern was real, and the Canadian and Provincial Governments have stepped in and introduced new mortgage rules to curb high prices.

The result is being felt as house prices have started to taper and sales have also started to slow. The good news is, so far the impact has been gradual and hasn’t resulted in a hard crash like the U.S. experienced during the financial crisis. It is important to understand and keep tabs on housing as Canada’s banks have a good number of these mortgages on their books and a hard crash could result in high defaults and write downs.

Banks that have a high percentage of their mortgage portfolio in the larger centers such as Vancouver and Toronto are particularly vulnerable to this risk.

The best thing about these Canadian bank stocks? Their dividends!

You can’t have a conversation about banks without discussing dividends. Canada’s banks were the envy of most when, unlike their U.S. peers who slashed dividends, they managed to weather the financial crisis without cutting their dividends.

The question now becomes, who is best positioned to continue raising dividends and at what rates? Look for banks that have raised for at least 5+ years and have a clear dividend policy. If you’re looking for some of the best dividend stocks to buy, check out our list of the top 15 in Canada.

Look at the bank capital adequacy ratio

Another key metric to review is bank capital adequacy ratio. These legal requirements (Basel Accord III) were implemented to address deficiencies in financial regulation exposed by the financial crisis. Specifically, the Tier 1 Capital ratio (CET1) evaluates a bank’s financial strength and can be used to as a quick reference to gage a bank’s capital strength.

Investors can also use this ratio to compare banks against each other and the higher the CET1 ratio, the better. Of note, according to the Basel III Accord, banks must have a minimum CET1 ratio of 4.50% by 2019. In Q3, Canadian banks averaged a CET ratio greater than 11% and are well positioned to weather a downturn in the economy.


So what do you think? If you had the choice would you leave these rankings as they are? Let us know the 5 banks that would never let you down in the comments below!

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