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The Big 5 Banks: What Returns Can You Expect From Them Today?

The big Canadian banks are popular investments, especially among dividend investors. They are some of the oldest corporations in Canada that have paid dividends for a long, long time. For example, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has paid dividends for 182 years!

The banks have experienced pullbacks and are trading closer to 52-week lows than 52-week highs. What kind of returns can we expect from an investment in the banks today?

Royal Bank of Canada (TSX:RY)(NYSE:RY) is priced around $75 with a yield of 4.1%. Its payout ratio is around 46% and we can expect a raise in the next quarter following the bank’s schedule of hiking dividends every six months.

Royal Bank is trading at a price-to-earnings ratio (P/E) of 11.5, while it has normally traded at a multiple of 12.5-12.9, indicating its shares are discounted at about 10-12% according to fiscal year-end earnings estimates.

With the yield at 4.1% and earnings expected to grow by at least 5% in the foreseeable future, it’s projected Royal Bank will generate returns of at least 9%.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is priced around $52 with a yield of 3.9%. Its payout ratio is around 47% and the bank has already increased its dividend by 8.5% this year.

Toronto-Dominion is trading at a P/E of 11.7, while it has normally traded at a multiple of 12.2-12.6, indicating its shares are discounted at about 7-10% according to fiscal year-end earnings estimates.

With the yield at 3.9% and earnings expected to grow by at least 7% in the foreseeable future, it’s projected Toronto-Dominion will generate returns of at least 11%.

Bank of Nova Scotia is priced around $61 with a yield of 4.5%. Its payout ratio is around 46% and we can expect a raise in the next quarter following the bank’s schedule of hiking dividends every six months.

Bank of Nova Scotia is trading at a P/E of under 11, while it has normally traded at a multiple of 12.3-12.4, indicating its shares are discounted at about 12-14% according to fiscal year-end earnings estimates.

With the yield at 4.5% and earnings expected to grow by at least 5% in the foreseeable future, it’s projected Bank of Nova Scotia will generate returns of at least 9%.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is priced under $92 with a yield of 4.8%. Its payout ratio is around 47%, and in May it paid a dividend that was 9% higher than it was a year ago.

Canadian Imperial Bank of Commerce is trading at a P/E of close to 10, while it has normally traded at a multiple of 11-11.6, indicating its shares are discounted at about 9-14% according to fiscal year-end earnings estimates.

With the yield at 4.8% and earnings expected to grow by at least 4% in the foreseeable future, it’s projected Canadian Imperial Bank of Commerce will generate returns of at least 9%.

Lastly, Bank of Montreal (TSX:BMO)(NYSE:BMO) is priced around $72 with a yield of 4.5%. Its payout ratio is around 50%, and in July it paid a dividend that was 5.1% higher than it was a year ago.

Bank of Montreal is trading at a P/E of under 11, while it has normally traded at a multiple of 11.6-12.1, indicating its shares are discounted at about 8-11% according to fiscal year-end earnings estimates.

With the yield at 4.5% and earnings expected to grow by at least 5% in the foreseeable future, it’s projected Bank of Montreal will generate returns of at least 9%.

In conclusion

The Big Five banks are all about 10% discounted from their normal historical trading levels. However, Foolish investors may be interested to know that Royal Bank and Toronto-Dominion have higher S&P credit ratings of AA-, implying they are stronger than the other banks.

You’ll need to decide for yourself whether or not you are happy with the slight discount in the bank shares, and whether or not you want to go for the higher yields.

Do you own bank shares? You won't want to miss our latest report!

Canadian banks are considered must-have investments. After all, they're very stable, well capitalized, and face limited competition. That said, there are concerns for the banks and their investors. In this FREE report, we cover everything you need to know about Canada's Big Five--whether you're already an investor or are considering buying shares. Simply click here to receive your special FREE report, “What Every Bank Shareholder MUST Know."

Fool contributor Kay Ng owns shares of Royal Bank of Canada (USA), The Bank of Nova Scotia (USA), and The Toronto-Dominion Bank (USA).

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