National Bank of Canada Posts a Strong Q3: Why it Might Be the Best Bank Stock

National Bank of Canada  (TSX:NA) posted its quarterly results on Wednesday and was able to beat its expected earnings. Revenue for the quarter of $1.675 billion was up 8% from the prior year as non-interest income rose by 9%, while net interest income increased by 6%. The company also posted net income of $518 million, which was up 8% from the previous year’s tally of $478 million.

National Bank is certainly underrated when considering other big-name banks, but I will outline three reasons why you should consider the stock.

The bank saw all of its segments grow sales and most had stronger bottom lines

The bank’s personal and commercial segment saw revenues increase by 6%, while net income grew to $240 million this quarter, up 21% year over year. The main drivers pushing the increase in this segment were growing loan, deposit, and credit card balances.

The wealth management division saw revenues grow by 12%, and net income jumped by 31% from 2016. The improvements here were mainly the result of growth in deposits and higher margins overall.

The company’s financial markets segment also saw sales increase by 6%, while net income was up 8% largely due to trading revenues growing by 14% from the prior year.

Lastly, the U.S. specialty finance and international division posted revenues of $147 million, which were up 18% year over year. However, net income for the segment was down $13 million as the prior year included a non-taxable gain of $41 million which was not present this quarter.

The company continues its strong growth

Revenue for Q3 was up over 7% and the previous three quarters also showed positive year-over-year growth. In the previous quarter National Bank posted revenues which were up 12% year over year, while Q1 was 27% higher than a year ago, and Q4 improved over 11% from the prior year as well. Revenues have also grown for three consecutive years, and this year should prove to be a continuation of that trend.

Net income has also improved year over year for the third consecutive quarter with Q2 showing an improvement of 130% in the bottom line, while in Q1 profits grew by 90%. The company’s net income has not grown as consistently as revenues have; however, the bank has been able to consistently maintain a profit margin of at least 20% of net revenue.

National Bank’s stock has outperformed the other big banks

National Bank might be the sixth-largest bank, but it’s stock is among the best for investor returns. Although 2017 has been a poor year for banks, with names like Canadian Imperial Bank of Commerce down 5%, Bank of Montreal dropping over 7%, and Toronto-Dominion Bank declining over 3%, National Bank’s stock has been leading the pack with year-to-date returns of over 5%. If we look at the past 12 months, the spread is even larger with National Bank’s returns of almost 22% being well above Royal Bank of Canada’s 15% returns and Bank of Nova Scotia’s 16% price improvement.

Bottom line

National Bank is perhaps an afterthought when thinking of the big banks, but it shouldn’t be. The stock has a dividend of 4%, which rivals most other Canadian banks, it has seen strong growth, and its stock has done a terrific job the past year of providing great returns for investors.

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Fool contributor David Jagielski has no positions in any stocks mentioned.

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