Which Banks Should You Add to Your TFSA as Interest Rates Take Off?

Market pullbacks are the best time to buy high-quality companies such as Royal Bank of Canada (TSX:RY)(NYSE:RY). Find out which bank stock is ideal for dividend investors.

| More on:

The Canadian banks have long been a staple of many investors’ portfolios and make great first investments for anyone just starting out.

That’s partly because the Canadian banking system is highly regulated — unlike in the U.S. prior to the 2008-09 financial crisis — and is heavily protected with only a handful of major competitors in the market.

And all the banks pay investors attractive dividends.

That means you’re literally getting paid as you wait — usually about once a quarter — while the value of your investment appreciates in value.

It’s a winning formula to be sure and has been for many years; just ask an older family member if they’ve ever held an investment in one of Canada’s banks and how it’s worked out for them.

The only trick left is finding out which one is right for you.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) made a big splash earlier in the month when it acquired one of Canada’s largest and most reputable asset managers, Jarislowsky Fraser.

Bank of Nova Scotia has been making a push as of late with a string of acquisitions, Jarislowsky Fraser being the most notable one, and some pretty significant investments in technology.

With the “AI revolution” running full steam ahead, there will likely be a lot of investments made in technological initiatives over the next decade, and it will be interesting to see if Bank of Nova Scotia’s early investments will give it a competitive advantage.

Royal Bank of Canada (TSX:RY)(NYSE:RY) is Canada’s largest bank, and there’s always strength — and safety — in numbers.

Royal Bank just reported earnings that beat estimates by $0.02 and raised its quarterly dividend by 3%.

The bank’s strength lies in its wealth management business, which it has been able to successfully expand into several international markets in recent years.

One of the advantages of the firm’s wealth management business is that it tends to help bring in more high-net-worth clients who generate more fees for the bank per account.

If you’re strictly focused on dividend investing for the time being, you’ll probably find that Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is the right bank for you.

Shares currently yield 4.6%, which is the highest of any of the “Big Five” banks, and with a payout ratio less than 50%, CIBC still has room to increase its distribution in the coming years.

With a price-to-earnings ratio hovering around 10 times, CIBC is also the cheapest of the banks today.

Conclusion

If you’re focused on “growth investing,” you’ll probably appreciate the recent steps taken by Bank of Nova Scotia’s CEO Brian Porter to secure a brighter future for the company.

Meanwhile, if you’re dependent on generating income from your investment account, you’d have a hard time doing better than an investment in CIBC’s shares.

At the same time, Royal Bank would be the “safe bet” among the bunch.

If none of the aforementioned companies capture your imagination, you may want to consider looking into a couple of smaller upstart lenders, such as Laurentian Bank of Canada (TSX:LB) and Canadian Western Bank (TSX:CWB).

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 Jason Phillips has no position in any of the stocks mentioned.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »