Bank stocks have rallied off their recent lows, and investors who missed out on the surge are wondering which names still offer solid potential returns.

Let’s compare Bank of Montreal (TSX:BMO)(NYSE:BMO) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to see if one is a better pick right now.

Dividend yield

Both companies have a long history of giving their shareholders a piece of the profits. Bank of Montreal has actually paid a dividend every year since 1829, and Bank of Nova Scotia started handing out distributions in 1892.

Bank of Montreal currently pays a quarterly distribution of $0.84 per share for a yield of 4.3%. Bank of Nova pays $0.72 per share for a yield of 4.6%.

Winner: Bank of Nova Scotia

Diversified revenue streams

Concerns about a weak Canadian economy have bank investors looking for companies with international exposure.

Bank of Montreal has more than 500 U.S.-based branches and recently acquired GE Capital’s transport finance business. The American personal and commercial banking unit contributed 18% of fiscal Q1 2016 net income. A total of 29% of Bank of Montreal’s net income is generated outside Canada.

Bank of Nova Scotia is known as Canada’s most international bank with the majority of its foreign business based in Latin America. The company generates 50% of its net income outside Canada, with 29% coming from its International Banking group and 21% derived from the Global Banking and Markets division.

Winner: Bank of Nova Scotia


The banks are not as cheap today as they were a just month ago, so let’s see if there is still some value in the names.

Bank of Montreal currently trades at 11.7 times earnings, which is actually above the five-year average of 11.1, but its price-to-book ratio of 1.3 is lower than the 1.6 it has averaged over the same period.

Bank of Nova Scotia is trading at 11 times earnings, still well below the 11.8 times it has averaged over the past five years. The price-to-book ratio is 1.5, also below the 1.9 average for the past five years.

Winner: Bank of Nova Scotia

Long-term returns

Past performance is no guarantee of future returns, but it helps to identify companies that should deliver strong long-term growth.

A $10,000 investment in Bank of Montreal 20 years ago would now be worth $98,000 with the dividends reinvested.

The same investment in Bank of Nova Scotia would now be worth $146,000.

Winner: Bank of Nova Scotia

Energy exposure

Investors are concerned that a continued meltdown in the oil patch could hammer the Canadian banks.

Bank of Montreal finished Q1 with $7.4 billion in outstanding oil and gas loans, representing about 2% of the total loan book.

Bank of Nova Scotia’s $17.9 billion in existing energy loans represents about 3.6% of the total loan book.

Winner: Bank of Montreal

Which should you buy?

Both banks are solid long-term investments, but Bank of Nova Scotia appears to have an edge right now.

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Fool contributor Andrew Walker has no position in any stocks mentioned.