Big 5 Canadian Banks: Stock Analysis

Canadian Bank stocks analysis

What is a safe stock to buy? Many people would tell you to buy bank stocks. Obviously no institution is immune to market fluctuations. The 2008 financial crisis taught us that. But compared to the rest of the market, banks tend to perform consistently and have recovered well from corrections.

This is especially true in Canada. The big 5 banks have been a staple in the stock market for over 25 years. They are the largest banks in Canada and all hold over $100 billion in assets. Below is their ranking in the TSX by market capitalization.

Rank in TSX125814

Let’s take a quick look at each bank’s stock performance and ratios… 

Royal Bank of Canada

The Royal Bank of Canada was founded in 1864 and listed on the TSX in January 1995 and the NYSE in October 1995. It has the highest market capitalization of the top 5 banks ($148.4B as of 5/31). RBC currently trades on both exchanges under the ticker symbol $RY.

Chart of RBC since its listing (monthly candles, NYSE)

TD (Toronto-Dominion) Bank

TD Bank formed after a merger between the Dominion Bank and Bank of Toronto in 1955. The bank holds the most assets of any of the top 5 banks ($1.42T as of Fiscal Q2/2022). TD Bank was listed on the TSX in December of 1989 and the NYSE in August 1996. The bank currently trades under the ticker symbol $TD on both exchanges.

Chart of TD since its listing (monthly candles, NYSE)

CIBC (Canadian Imperial Bank of Commerce)

CIBC was formed in 1961 when the Canadian Bank of Commerce and the Imperial Bank of Canada merged. They were listed on the TSX in January of 1995 but were listed a little later on the NYSE (November 1997). They currently trade under the ticker symbol $CM on both exchanges.

Chart of CIBC since its listing (monthly candles, NYSE)

Bank of Nova Scotia (Scotiabank)

The Bank of Nova Scotia, commonly known as Scotiabank is another bank (along with TD) with over a trillion dollars worth of assets ($1T as of Fiscal Q2/2022). Scotiabank was a special case in terms of listing dates as it was listed first on the TSX (April 1996) and over 6 years later on the NYSE (June 2002). They are traded on both exchanges under the ticker symbol $BNS.

Chart of Scotiabank since its listing (monthly candles, NYSE)

Bank of Montreal (BMO)

The Bank of Montreal, commonly known as BMO was founded in 1817 and at the time was named “Montreal bank”. BMO is famous for not missing a dividend payment since 1829, giving them one of the longest dividend payment histories in the world. The bank was also the first Canadian bank to be listed on the NYSE near the end of 1994. It currently trades on the TSX and the NYSE under the ticker symbol $BMO.

Chart of BMO since its listing (monthly candles, NYSE)

Why do investors invest in Canadian Bank Stocks?

Canadian banks have remained lower-risk investments and consistently pay and grow their dividends. The top five banks have had annual dividend increases consistently and usually at worst will hold their dividends the same in a bad year. These are the biggest reasons investors like Canadian bank stocks.

When are Canadian bank stocks the most profitable?

Canadian banks are the most profitable when mortgage demand is high and interest rates are affordable enough that people are not defaulting on their mortgages. Contrary to popular belief, rising interest rates do count for a higher net amount of interest paid to banks. However, increased mortgage payments may cause a lot of homeowners to default.

How do crashes affect bank stocks?

The most recent stock market crash prior to the 2020 covid crash was the 2008 financial crisis. The bank sector lost a lot of money as many people could not afford their homes. 

Additionally, lending was frozen and a lot of businesses that were originally taking loans from the banks could no longer pay them back, so that avenue of profit dried up as well. 

However, all the banks continued to pay out their dividend payments throughout the crisis, further solidifying them as an attractive choice for long-term investment.

5 Year Performance for Canadian Bank Stocks (Year-end close share price)

Canadian Bank Stocks 5 year performance

Fundamentals Comparison

Price to Earnings (PE) Ratio – This compares the stock price to the company’s profit.

Canadian bank stocks P/E ration comparison
P/E Ratio (Current)11.8012.149.7510.557.70

Debt to Equity (D/E) Ratio – Compares the company’s total debt to total equity, giving you a picture of how leveraged the company is.

Canadian bank stocks D/E ration comparison
D/E Ratio (Current)3.191.922.992.712.01

Earnings Per Share (EPS) – A basic measurement of how much profit per share the company brings in.

Canadian bank stocks EPS comparison
EPS (Q1 2022)$2.23$1.59$1.59$1.69$3.49

Dividend Yield – Shows you how much ROI the dividend earns per share.

Canadian bank stocks dividend yield comparison
Dividend Yield (June 2022)3.87%3.71%4.75%4.82%4.04%

Free Cash Flow – The cash left over after paying operating expenses.

Canadian bank stocks free cash flow comparison
Free Cash flow (Q1 2022)$312.28M$15.52B$2.41B$7.8B$1.2B

Book Value Per Share – Is the Shareholder equity divided by the number of all shares out on the market (outstanding shares).

Canadian bank stocks book value per share comparison
Book Value Per Share (Q1 2022)$52.46$41.69$37.31$43.22$65.80

Total Assets

Canadian bank stocks total assets comparison
Total Assets (Q1 2022)$1.38T$1.4T$677.78B$979.69B$804.83B

Total Liabilities

Canadian bank stocks total liabilities comparison
Total Liabilities (Q1 2022)$1.3T$1.32T$640.59B$921.52B$757.79B

What do I do with this information?

After reviewing all of this information, how do you feel about Canadian bank stocks? What questions does this bring up for you? Has this inspired you to research something specifically?

Take your next step by investigating further. Get all your questions answered to your satisfaction before you make an investment decision.

If you’re looking for somewhere to make your first investment, this could be a good place to start learning. We’re all learning. Constantly.  That’s the life of a Stock Hacker.

That’s all for now.

Happy trading,

Your fellow Stock Hackers,

🍒Cherry & Erwin
P.S. The market dropped almost 20% between January and June this year. Many are worried it could keep going. Will the market crash? What are you supposed to do if it does crash? We unpack all of these questions in our latest FREE report, “What to do if the Market Crashes in 2022.” Download your free copy now!

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