The Best Canadian Bank Stocks to Buy in December 2024
Whether you’re a seasoned investor or just starting out with buying stocks in Canada, there’s one thing most Canadians agree on when building their portfolios: they almost always include Canadian bank stocks! So, why do Canadian bank stocks make such a popular choice?
Stick around to learn the secrets behind these reliable investments and how they can benefit your financial journey.
Let’s get to the best Canadian bank stocks to buy moving forward.
Keep in mind, you can read our in-depth research by clicking on the particular company in the table below or simply keep scrolling.
What are the best Canadian bank stocks to own today?
- Goeasy Ltd (TSE:GSY)
- Canadian Imperial Bank of Commerce (TSE:CM)
- Bank of Montreal (TSE:BMO)
- Toronto Dominion Bank (TSE:TD)
- National Bank (TSE:NA)
- The Royal Bank of Canada (TSX:RY)
6. Goeasy Ltd (TSE:GSY)
For the most part, this list is constructed of major Canadian banks. They’re simply the best bank stocks in the country. However, as an added bonus, we’ve put a solid alternative lender here in Canada on the list in Goeasy Ltd (TSE:GSY).
Alternative lenders have exploded in popularity as of late, as many Canadians are rejected by major banks and need to head to smaller institutions to gain access to capital.
This gives the impression that Goeasy’s customer base is extremely high-risk, but this isn’t true.
In fact, most of Goeasy’s customer base has lower debt loads than those of major banks. Why? Well, they don’t have mortgages. In the vast majority of cases, this will be the number one priority in terms of payment for any Canadian.
So what exactly does Goeasy do? The company provides financing options to purchase furniture, electronics, and appliances. It also offers unsecured loans to customers who need cash. It has two primary segments, easyhome and easyfinancial, with easyfinancial making up the lion’s share of the company’s revenue.
Despite rising rates, activity isn’t slowing for Goeasy. However, there are some headwinds the company is undergoing right now that are making prices even cheaper over the short term.
For one, people are scared that its lending base will suffer in a recession. Whether or not this is true is difficult to conclude. However, higher interest rates will no doubt put some pressure on its customer base.
Secondly, government regulations placed on the maximum allowable interest rate in 2023 have impacted the company. However, a relatively small amount of its loan book will be impacted, and the company actually sees the reduction in maximum allowable interest rate as a positive thing for growth.
Goeasy has taken the prudent approach when it comes to dividend growth in light of both of these conditions. Once a company that grew the dividend at a rapid pace, it has slowed to mid single digit growth, despite its dividend payout ratio being extremely low. Once the economy picks back up again, I’d expect the dividend growth at Goeasy to pick up as well.
5. Canadian Imperial Bank of Commerce (TSE:CM)
CIBC (TSE:CM) has been a perennial under-performer but makes the cut on this list update over Scotiabank.
Before the significant correction in Canadian financials, CIBC was one of the best-performing bank stocks in the country. This was a rarity, as the company has often struggled compared to its peers.
However, the company’s reliance on the Canadian economy and fears of a housing bubble and recession have caused it to give back many of its gains.
It doesn’t have the international exposure all of the other major banks on this list do. It’s undoubtedly making steps as an international bank, but it isn’t there just yet.
The company is expected to post earnings per share of $6.95~ in 2023, which would mark a low single-digit decline in earnings. Although it had a torrent run in 2021 and the start of 2022, analysts see this bank cooling down in 2023. Many other options on this list are expected to post much higher earnings growth.
In terms of valuation, this company has typically traded in the 10.2x range in terms of price to earnings over the last half-decade. At the time of writing, it’s currently trading at a single digit premium to that valuation.
Also worth noting, CIBC also boasts the largest dividend yield on this list, in the low 6% range. Typically, CIBC sports one of the highest yields among its peers, and this time is no different.
CIBC has one of the higher payout ratios among its peers in the 53% range. This isn’t necessarily cause for concern, however. The company has always run with higher payout ratios and has been more of an income-producing bank for shareholders. However, it will be essential to keep an eye on these ratios if the Canadian economy struggles.
4. Bank of Montreal (TSE:BMO)
During the pandemic, the Bank of Montreal (TSE:BMO) was the hardest-hit bank. In fact, for most of 2020, the bank trailed its peers. That is, until the markets recognized it was significantly undervalued, and it quickly became one of the best-performing banks.
The Bank of Montreal is one of North America’s top ten largest banks. It has paid uninterrupted dividends since the early 1800s, the longest streak in the country.
Most of its revenue comes from the Canadian economy, making it one of the more heavily dependent Canadian bank stocks in its home country. However, it also has strong (and growing) exposure south of the border. In fact, its recent acquisition of Bank of The West closed, which should add considerable exposure south of the border.
Despite its substantial exposure to Canada, it is critical to note that the company also has the lowest exposure to the Canadian housing market, a market that many investors think is a bubble just waiting to burst.
Furthermore, the Bank of Montreal has been one of the most consistent performers among all of Canada’s banks. In fact, the company’s exceptional performance over the last few years has caused it to make up significant ground. As a result, it is the third-best performing Canadian bank over the previous 3, 5, and ten-year periods, trailing only National Bank.
Despite its exceptional performance over the last few years, the company is still trading below its 3, 5, and 10-year historical averages at the time of writing. This may be due to the fact analysts expect a mid single digit decline in earnings in 2023, with the bank posting EPS of $12.60.
These earnings projections are certainly factoring in a recession. If we manage a soft landing here in Canada and the US, they’d likely be revised upwards. It has faced some pressure as of light due to its acquisition of Bank of the West, primarily because of the regional banking crisis in the United States. However, it’s still a very strong option.
3. Toronto Dominion Bank (TSE:TD)
Toronto Dominion Bank (TSE:TD) is a multinational banking and financial services firm that started operations in 1855. TD Bank is one of the largest banks in Canada by total assets and the second largest by market capitalization.
The financial giant was named one of the most convenient banks in the U.S. and is among the top brands in North America. The company has a $145B+ market cap and the highest exposure south of the border, as more than 40% of revenue comes from the U.S.
Over the last half-decade, TD Bank has averaged high-single-digit earnings growth. This is one of the best growth rates among the Big 5 Banks and includes the pandemic-stricken 2020.
This is one of the primary reasons TD Bank has grown its dividend rapidly and owns the highest dividend growth rate of its peers. In late 2021 and early 2022, TD Bank was the best-performing bank stock by a landslide. However, it has since cooled down significantly, not only because of its overall US exposure but because of its failed deal for First Horizon.
The $13.4B deal would have expanded the company’s footprint in the United States. It very likely would have proven to be beneficial for shareholders over the long term. However, with the regional banking situation in the United States, the bank felt it was best to pull the trigger.
If you’re an investor that aims for total return, don’t sleep on TD Bank. On a price to earnings basis, it’s one of the cheapest banks in the country at the time of writing and is trading at a double digit discount to historical averages. It is one of the more attractively valued banks in the country.
2. National Bank (TSE:NA)
National Bank (TSE:NA) dominates in terms of market share in Quebec, with over 60% of its revenue coming from the Canadian province. The bank also depends heavily on personal and commercial banking, making up over 40% of its total revenue.
However, it’s important to note that National Bank also has a strong and growing international presence. The company often gets lumped in with Laurentian Bank and Canadian Western Bank. However, in our opinion, this is a much better quality company.
Although it’s smaller than Canada’s major institutions, glass-half-full investors will realize this is a prime opportunity to grab a growth stock in the banking sector, which is an infrequent occurrence.
Over the last 5 years, National Bank (dividends accounted for) has returned 85% to investors at the time of writing. The next closest bank? Royal Bank at 51%. For the most part, studies around Big Bank valuations have not included National Bank. However, National Bank’s stock reacts similarly to the Big Five.
When it trades below historic averages, it always returns to the mean. The opposite is also true; when it trades above historic averages, it always drops to trade in line with historical averages.
After a recent correction, the company is trading at a single-digit discount to its historical valuations. However, it will be interesting to see if the company will revert to the norm, as analysts expect so-so results for this year. This is something we’re certainly not used to seeing.
A company that routinely posted high single-digit growth is only expected to post a low single-digit decline in earnings this year. This is one of the lower growth rates on this list and might be why the market is giving it a lower valuation.
The lower projected growth rates are likely from the company having considerable exposure to the Canadian economy, an economy that is projected to see some significant slowdowns in growth if a recession were to occur.
However, as we’ve mentioned before, the company has defied expectations. It has led all of Canada’s banks despite only having average growth rates.
1. The Royal Bank of Canada (TSX:RY)
Our position on the Royal Bank of Canada (TSE:RY) hasn’t changed – it remains the top bank in the country.
Despite the pandemic, it continues to perform and was one of the few that managed to grow the top line (revenue) YoY. We’re confident it can survive an upcoming recession if it can thrive during a global pandemic.
It is one of the most diversified banks in the world, and its global exposure allowed it to provide stable revenue and earnings as multiple countries were in different phases of economic recovery due to COVID-19.
When we compare Royal Bank to the other Big 5 banks in Canada over the last half-decade, its performance has been average.
It has outperformed lagging banks like the Bank of Nova Scotia and Canadian Imperial Bank of Commerce. Still, it has been surpassed by the high-growth options like National Bank.
Keep in mind, considering this is the largest company in the country, we can’t expect it to keep pace with the growth of a smaller, more regional player in National Bank. But that certainly doesn’t make it a poor investment.
The same valuation principles apply to Royal Bank, as we’ve discussed with many other banks. And as of right now, it’s trading at a slight discount to historical averages.
RBC looks to be fairly valued here at the time of writing. This means that it should perform in line with expectations. The company is expected to put up low single digit growth this year. Of note, this is the only major bank on this list that is expected to produce an increase in earnings in 2023.
Given its size and status as the largest company in the country, Royal Bank provides unparalleled safety. It is one of those rare stocks you can buy at any point. While you don’t necessarily want to overpay today, the company is well-priced. It should continue to do well for years to come.
Are Canadian banks a good buy now?
Historically there hasn’t really been a “poor” time to buy into these blue-chip big banks or add to your position. Canadian investors witnessed the banks go through a significant bull run in late 2021, primarily because of the rumours of rising interest rates.
However, what was a tailwind has now turned into a headwind, and Canadian banks have struggled. Rates are increasing at a pace that could lead to a recession, and ultimately the market doesn’t like it.
However, this means we’ll be able to grab our favourite bank stocks on the TSX for even cheaper. I’ve owned Canadian banks for the entirety of my investing career, and regardless of whether or not they’re going through a significant bull run or dip, I’ll be adding consistently.
How safe are Canadian bank stocks?
The highly regulated Canadian banking market creates massive barriers to entry. This is similar to the Canadian telecom sector.
Most importantly, all 6 Big Banks have diversified product bases, including global banking, global wealth management, small business banking, personal banking, consumer and commercial lending, capital markets, and much more. Not only is their client base focused on Canadian consumers, but institutional clients also.
The Big 5 are incredibly important to the economy in Canada, as are some of the smaller regional players, such as the National Bank of Canada (NA) and Canadian Western Bank (CWB). They deal with wealth management for clients, investment banking, mortgages, personal banking, car loans, and so much more. They are vital to a healthy economy.
A Canadian bank stock can be a cornerstone of one’s portfolio, is low-risk, and provides growth and a steady income to increase your net worth over time.
After weathering the financial crisis better than most all world banks, the banks in Canada were also among the first to reinstate a rising dividend. In fact, the Bank of Montreal has one of the longest consecutive dividend payment streaks in the country, paying dividends since the early 1800s.
Is there an ETF for Canadian bank stocks?
There are a wide variety of ETFs for Canadian bank stocks. If you’re looking for a traditional ETF that holds the Big 6 banks, look at the BMO Equal Weight Banks ETF (ZEB.TO) or the RBC CA Bank Yield ETF (RBNK.TO).
However, if you want an ETF that can provide you with a bit more yield, look to Canadian bank ETFs like BMO Covered Call Canadian Banks ETF (ZWB.TO) or even Canadian Banc Corp (BK.TO).
Which Canadian bank stock pays the highest dividend?
At this point in time, Scotiabank is the highest yielding Canadian bank stock. This title used to be routinely held by Canadian Imperial Bank of Commerce, however due to some significant struggles by Bank of Nova Scotia over the years its price has fallen to the point where it is the highest yielding bank stock.
However, Scotiabank and CIBC are relatively close, typically only being 0.3%-0.4% off of each other in terms of yield. So by the time you’re reading this article, things could have changed.
How to value Canadian bank stocks
One of the most reliable ways to value Canada’s banks is to compare their current stock prices against historical averages. Whether they are traded at a discount or premium to historical and forward P/E averages, they have always returned to the mean.