Investing Strategies For Canadian Banks

Most Canadians have faith in the Canadian banks and I hope by now that non-Canadians have gain some belief in their stability. Before you go out  and load up on all the banks, I thought I’d share some possible strategies depending on what you are looking for and your investing style. Even dividend investors have a style :)

Canadian Banks

Below are the Canadian banks by market capitalization.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.6493.0898.0511.9212.477.810.054.640.553144.320.120067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.6859.9280.2410.5312.475.690.055.270.555443.160.142867Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.7255.5467.289.1512.476.070.066.480.593143.600.124268Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.6872.8246.589.7212.477.490.065.820.566144.240.096157Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.7291.6230.1510.0612.479.100.066.370.641845.840.112568Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6861.2520.5510.1912.476.010.054.640.472542.840.115067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.7023.052.017.7012.472.990.055.030.388041.160.105268Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.4928.331.2210.2812.472.760.065.650.579741.600.091925Tollbooth - UnregulatedNONOYESNOCanada1

They can be categorized in 3 groups if you wish to look at it differently:

  • Very large international banks: RY, TD,
  • Medium scale banks: BNS, BMO, CM, NA
  • Small local bank: CWB, FN, LB, EQB

They all compete against each other in Canada and since they still heavily rely on their Canadian business, the size of the players doesn’t really matter to some extent. A fee from a customer is still a fee-generating profits. Their international growth is what can allow them to grow and expand further. The best Canadian bank stock comes from consistency in growing the top and bottom line together. One way to find it, is to have access to the 3, 5 and 10 year revenue growth and dividend growth. Since dividend growth is a reflection of the bottom line for profits, it usually is a good indicator. In the end, I also look into the Chowder Score to finalize the decision.

The Favorite Strategy

This strategy tends to be in line with the herd mentality which isn’t a good thing usually as the stocks tend to have gained by the time the herd comes. When it comes to banks, it may not be a bad thing as we come out of our late financial crisis since the recovery is much slower and the Canadian banks are positioned to profit from it. The current favorites by analysts are:

You get 2 strong banks in Canada with exposure to the U.S. with TD and exposure to South America with BNS.

The Contrarian Strategy

These banks are out of favor at the moment. Mostly because the analysts don’t see a quick buck to be made but this isn’t a sprint, it’s a marathon. The contrarian strategy is the one I tend to look for as it can have the bigger payout over time. Depending on the dividend yield and the ability for the bank to sustain it, being patient with these banks will usually pay in the long run. The banks for the contrarians are:

The payout ratio of these banks is higher than the favorite banks but it should get in line as they grow their earnings. The big question is if they will keep up with the expected dividend increase by the banks. There is expectation that BNS will increase at the next quarter. Considering they increased bank fees by 20%, I wouldn’t be surprised to see a 5%-10% dividend increase by BNS.

The Wild Card Strategy

With erratic numbers and a lack of consistency, this bank deserves the wild card strategy. It has done well recently compared with the other banks but my review from a number perspective was inconclusive. It’s still a bank and it will probably move along with the other banks but I can’t say if it will do better or not. It currently is last on my list unless I can be convinced otherwise. This bank is:

The Forgotten Gem

I admit, this is not a strategy but I needed to have a section for this bank. It has very strong numbers.

  • A P/E of 11.50 below all the other banks
  • A dividend yield of 3.52%
  • A payout ratio of 40% below all the other banks by nearly 10%
  • 1st bank to increase dividends

It’s mostly operating in Quebec and expending in Ontario. It has much growth potential. The bank is:


Those are strategies that I thought could work well depending on what you are looking for with your portfolio. I am particularly found of the contrarian strategy. Here is a little graph on how they compared in the last 6 months. As you can see, the forgotten gem takes the lead.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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