A share price that has been falling steadily since the start of the year pairs nicely with a decent dividend and a solid balance sheet in the following stalwart Canadian banking stock. Financial stocks like the Big Five are definitely worth stacking in your passive-income portfolio, but dividend investors should also take outliers like Laurentian Bank of Canada (TSX: LB) into consideration.
An attractive banking stock outside the Big Five
There’s a lot to like about this very healthy TSX index super-stockĀ from a great track record (check out a five-year average past earnings growth of 14.4%) to recent wins, such as a one-year past earnings growth of 11.2%. While these figures don’t come close to those of some of the more daring TSX index growth stocks, they do look good for a Canadian banking stock.
A PEG of 1.8 times growth is a tad high, though a P/E of 7.8 times earnings and sober P/B of 0.7 times book show that valuation for this stock is attractively low. The resultant dividend yield of 6.56% is appropriately juicy and makes for solid competition for the more workaday dividends on offer in this sector.
Is this a long-term buy?
If it’s a TFSA or RRSP you’re looking to pad out, this banker looks like a decent way to go. If you’re not overly heavy on financials, add it to a portfolio that contains the usual mix of energy, natural resources, utilities, miners, discount retailers, and transport. Stacking Laurentian Bank of Canada alongside a couple of Big Five stocks (or Big Six, depending on your count) also looks like a good play and will help grow your nest egg.
In terms of debt, Laurentian Bank of Canada has an acceptable proportion of non-loan assets, though its low tolerance for bad loans is the usual issue with Canadian banking stocks with few exceptions. Laurentian Bank of Canada’s ROE of 9% could be higher; indeed, the usual figure for a fairly mediocre TSX index stock is around at least 11%. A sizable EPS of $5.10 makes this a pretty solid pick for fans of earnings (and who isn’t, right?), while a 4.3% expected annual growth in earnings is slim but at least positive, and not much different from that of other entities in this sector.
Laurentian Bank of Canada doesn’t have the wildest momentum on the TSX index, though its apparently constant downhill trajectory might place it on the radar of long-term capital gains investors who like undervalued stocks. It shed 4.26% in the last five days and has a 24% discount against its future cash flow value. Its beta of 0.76 is reassuringly low, meanwhile, and means that this is a low-volatility stock just right for a long-term position.
The bottom line
Laurentian Bank of Canada is a fairly safe bet for risk-averse dividend investors looking to make money. If you stack shares in this bank in your portfolio, you shouldn’t have to worry about them any time soon. That low beta and undervaluation make Laurentian Bank of Canada stock a low-risk and low-maintenance pick just right for a long-term savings account.
