Does Canadian Western Bank and its 3% Yield Belong in Your Portfolio?

Canadian Western Bank’s (TSX: CWB) shares have fallen over 4.5% since it released first-quarter earnings results on March 4. Is now the time to buy?

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Canadian Western Bank (TSX: CWB), Canada’s 10th largest bank in terms of total assets, announced first-quarter earnings results after the market closed on March 4, and its stock has responded by falling over 4.5% in the weeks since. The stock now sits more than 36% below its 52-week high, so let’s take a closer look at the quarterly results to determine if we should consider scaling in to long-term positions today.

Breaking down first-quarter results

Here’s a summary of CWB’s first-quarter earnings results compared to its results in the same period a year ago.

Metric Q1 2015 Q1 2014
Earnings Per Share $0.65 $0.61
Revenue $152.38 million $144.07 million

Source: Canadian Western Bank

CWB’s diluted earnings per share from continuing operations increased 6.6% and its revenue from continuing operations increased 5.8% compared to the first quarter of fiscal 2014. The company’s strong earnings-per-share growth can be attributed to its adjusted net income increasing 7% to $53.58 million and its solid revenue growth can be attributed to net interest income increasing 9.2% to $132.92 million.

Here’s a breakdown of 12 other important statistics and ratios from the report compared to the year ago period:

  1. Total assets increased 11.2% to $21.27 billion
  2. Total loans increased 12.4% to $18.14 billion
  3. Total deposits increased 10.3% to $17.92 billion
  4. Total debt increased 38.4% to $1.13 billion
  5. Total shareholders’ equity increased 5.5% to $1.73 billion
  6. Total assets under administration increased 9% to $9.22 billion
  7. Total assets under management increased 11% to $1.87 billion
  8. Net interest margin contracted five basis points to 2.59%
  9. Efficiency ratio expanded 240 basis points to 47.1%
  10. Return on common shareholders’ equity contracted 70 basis points to 13.1%
  11. Return on assets contracted four basis points to 1.01%
  12. Book value per share increased 11.4% to $19.99

CWB also reiterated its full year outlook on fiscal 2015, which calls for the following performance compared to fiscal 2014:

  • Earnings-per-share growth in the range of 5-8%
  • Loan growth in the range of 10-12%
  • Efficiency ratio of 47% or less
  • Return on equity in the range of 14-15%
  • Return on assets in the range of 1.07-1.12%

Should you be a buyer of CWB today?

I do not think the post-earnings drop in CWB’s stock is warranted and actually represents an attractive long-term buying opportunity because it trades at very low valuations and pays a generous dividend.

First, CWB’s stock trades at just 10.3 times fiscal 2015’s estimated earnings per share of $2.68 and only 9.7 times fiscal 2016’s estimated earnings per share of $2.86, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 13.6. Also, it trades at a mere 1.38 times its book value per share of $19.99, which is very inexpensive compared to its market-to-book value of 2.03 at the conclusion of the first quarter of fiscal 2014.

Second, CWB pays a quarterly dividend of $0.21 per share, or $0.84 per share annually, which gives its stock a 3% yield at current levels, and I think this makes it qualify as both a value and dividend investment play today.

With all of the information provided above in mind, I think Canadian Western Bank represents one of the best long-term investment opportunities in the financial sector today. Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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