National Bank (TSX:NA) or Bank of Montreal (TSX:BMO): Which Is the Better Bank Stock?

The Quebec economy is at risk due to U.S. protectionism but that doesn’t mean investors should shy away from Bank of Montreal (TSX:BMO)(NYSE:BMO) and National Bank of Canada (TSX:NA).

| More on:

The S&P/TSX Composite Index rose 104 points on June 20 on the back of a huge win for cannabis legislation and an uptick for oil ahead of a key OPEC meeting. The Canadian stock market has managed to shake off a disastrous G7 meeting, slumping oil prices, and rising anxiety over trade tensions between the U.S. and China.

A solid earnings season for the top Canadian banks has also contributed to the positive atmosphere. Today we’ll look at two Quebec-based banks. Premier Phillipe Couillard recently said that actions on trade from President Trump pose a “direct threat” to the Quebec economy. Like Ontario, Quebec has dispatched ministers to speak to top policymakers and businesspeople south of the border in an attempt to warm up the trade relationship.

The Quebec economy thrived in 2017, but it will now be forced to face these new challenges. With that in mind, let’s take a look at the top two bank stocks and determine which one is the better bet for your portfolio today.

Bank of Montreal (TSX:BMO)(NYSE:BMO)

Bank of Montreal stock rose 0.33% on June 20, and the stock has climbed 2% in 2018 so far. Shares are nearing all-time highs that the bank posted back in January.

I discussed in an article yesterday why I targeted BMO as an enticing buy. Earnings in its U.S. Personal and Commercial banking segment surged 46% year-over-year in the second quarter. It also posted solid earnings in Canada as revenue grew and higher interested rates boosted loan margins. The stock offers a quarterly dividend of $0.93 per share representing a 3.5% dividend yield.

National Bank of Canada (TSX:NA)

National Bank is the sixth-largest major bank in Canada. Shares have climbed 1.7% in 2018 as of close on June 20. The bank released its second-quarter results on May 30.

Net income rose 13% year-over-year in the second quarter to $547 million, with diluted earnings per share reaching $1.44 compared to $1.28 in Q2 2017. The bank saw positive growth in each of its business segments, excluding specific items. The top performer was its U.S. Specialty Finance and International segment where net income surged 58% to $63 million. Much of this growth was due to the performance at the Credigy and ABA Bank subsidiaries.

National Bank’s Wealth Management segment also posted net income of $119 million, representing a 23% increase from the prior year. This was achieved through growth in net interest income and fee-based revenues.

National Bank also raised its quarterly dividend by $0.02 per share to $0.62, representing a 3.7% dividend yield.

Which should you buy today?

I like both of these Quebec-based banks going forward, but Bank of Montreal remains my top target due to its larger U.S. exposure. Its presence south of the border should mitigate some of the negative impacts that Canada could see from U.S.-imposed tariffs. The corporate tax cut will also continue to propel earnings going forward.

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 Ambrose O'Callaghan 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 »