3 Reasons to Consider Canada’s Smaller Bank Stocks

Investors interested in Canadian bank stocks usually go for one of the Big Five over smaller banks such as Canadian Western Bank (TSX:CWB).

| More on:

Whenever investors think of Canadian bank stocks, the Big Five naturally come to mind. Historic banks like Toronto-Dominion Bank that have paid dividends for more than 150 years are the choice of most.

But what about Canada’s smaller banks? They might not have the same stellar reputation, but that doesn’t mean you shouldn’t consider their stocks, so here are my thoughts on three of them.

National Bank of Canada (TSX:NA)

Depending on who you talk to, National Bank is either considered one of the Big Six or Canada’s biggest smaller bank. Either way, I believe it’s got a lot to offer investors.

Recently, the Globe and Mail’s “Number Cruncher” column named National Bank one of 14 stocks out of 250 that have consistently grown their fundamentals such as sales, income, cash flow, return on equity, etc., over the long term while also exhibiting short-term share price momentum. The only big bank on the list was Bank of Nova Scotia.

Not many Fool contributors cover the bank.

However, Karen Thomas had positive things to say about it in mid-January, suggesting that the bank is becoming more efficient. The bank’s lower efficiency ratio combined with strong growth in both its international and investment banking divisions makes it an excellent alternative to the big banks.

Growing as fast as the Big Five, and in some cases, faster, National Bank’s 4.2% dividend yield is very attractive right now.

Canadian Western Bank (TSX:CWB)

I didn’t think any of my Fool colleagues liked to cover Canada’s smaller banks. However, I was wrong. It turns out that Jason Phillips recently covered both CWB and Laurentian Bank of Canada (TSX:LBJanuary 30. And, more importantly, he likes both of them; as do I.


Well, in the case of CWB, it’s long been known as a financial institution serving Western Canada almost exclusively. However, it’s grown beyond Western Canada by supporting growth businesses across Canada. Case in point: in 2016, it made a big move acquiring GE Capital’s $350 million franchise finance loan portfolio.

It is these kinds of moves that continue to make it a make it a player in Canadian business banking. While it might not have a $21 billion market cap like National Bank, it does a good job supporting businesses in Western Canada and beyond.

Laurentian Bank of Canada

Of these three banks, Laurentian is the one I’ve been most vocal about over the past two years.

Long story short, Laurentian sold some residential mortgages to a third party that, in some cases, didn’t have the proper documentation or were improperly included in the sale. As a result, the bank was forced to review all of its insured loans through the CMHC. It completed the review last May with $295 million in mortgages sold inadvertently out of a total of $1.8 billion. It had no material impact on the bank.

In June, I’d suggested that Laurentian was a beaten-down stock that deserved better. It was trading in the mid-$40s at the time — well down from the high $50s a year earlier. Today, it’s still in the mid-40s, and like my colleague, I believe the future is a bright one for Laurentian.  

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 Will Ashworth has no position in any stocks mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.  

More on Bank Stocks

Woman has an idea
Bank Stocks

3 No Brainer Bank Stocks to Buy Now for Less Than $1,000

Canadian bank stocks like Toronto-Dominion Bank (TSX:TD) appear quite cheap today.

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold Today?

Royal Bank is up 23% from the 12-month low. Are more gains on the way?

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Better Bank Stock: BNS vs. BMO

TSX bank stocks such as BNS and BMO offer tasty dividend yields while trading at cheap valuations in 2024.

Read more »

Man considering whether to sell or buy
Bank Stocks

BNS Stock: Buy, Sell, or Hold?

Bank of Nova Scotia is up 15% from the 12-month low. Are more gains on the way?

Read more »

Bank sign on traditional europe building facade
Bank Stocks

2 Bank Stocks That Could Help You Make a Fortune

By adding these dividend-paying Canadian bank stocks to your portfolio now, you can expect strong returns on investments over the…

Read more »

A stock price graph showing declines
Bank Stocks

Bank Stocks Under Pressure Again! Time to Buy the Dip?

Bank of Nova Scotia (TSX:BNS) is one cheap dividend stock that it may be time to buy!

Read more »

A bull outlined against a field
Bank Stocks

Forget TD Bank: This Growth Stock Is Poised for a Potential Bull Run

TD Bank stock may underperform, again. However, Propel Holdings (PRL) stock could sustain a multi-year bull run while satisfying income…

Read more »

money cash dividends
Bank Stocks

2 No-Brainer Canadian Bank Stocks to Buy Right Now for Less Than $500

Despite falling sharply of late, the long-term growth outlook for these large Canadian bank stocks is still solid.

Read more »