Which Quebec-Based Bank Is the Better Buy Today?

National Bank of Canada (TSX:NA) and Bank of Montreal (TSX:BMO)(NYSE:BMO) are two of the smallest of the Big Six banks. Both also offer some of the best value right now.

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Toward the end of 2018 I discussed the pleasant surprise that was the Quebec economy and focused on two of the strongest banks in the region. Today I want to revisit one of those banks and compare it with another Montreal-based bank with a much larger national and international footprint. Which bank stock is the better buy today? Let’s find out.

National Bank (TSX:NA)

National Bank is the smallest of the Big Six Canadian banks. However, its footprint is significant in its home province of Quebec. Shares have climbed 9.9% in 2019 as of close on June 4. The bank released its second-quarter 2019 results on May 30.

For the second quarter in a row, National Bank reported net income of $558 million, up 2% from Q2 2018. Diluted earnings per share posted 5% growth to $1.51. In the year-to-date period, net income has increased 1% to $1.11 billion and diluted EPS has climbed 4% to $3.01.

National Bank reported net income of $234 million in its Personal and Commercial Banking segment, up 9% from the prior year. Personal lending rose 4% year over year and commercial lending posted 9% growth. Unlike its peers, however, National Bank reported a disappointing quarter in its Financial Markets segment. Net income fell 16% year-over-year to $160 million largely due to lower revenues from the global markets revenue category.

The bank elected to raise its quarterly dividend in the face of a lukewarm quarter. National Bank now offers a quarterly dividend of $0.68 per share, a 4.6% hike, representing an attractive 4.4% yield. National Bank’s forward P/E of 10 makes it a value play relative to its peers right now.

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

Bank of Montreal is the fourth-largest Canadian bank. Shares have climbed 11.9% in 2019 as of close on June 4. The stock is still down 1% from the prior year. In early May I discussed why BMO was poised for improved results in the second quarter, but cautioned investors that some of its technicals put the stock in pricey territory.

BMO released its second-quarter 2019 results on May 29. The bank reported adjusted net income of $1.52 billion, up 4% from the prior year. Adjusted earnings per share rose 5% to $2.30. Net revenue also increased 8% to $5.65 billion.

Adjusted net income in Canadian Personal and Commercial Banking rose 5% year-over-year to $615 million on the back of strong revenue growth. In what has become a consistent trend, BMO’s U.S. P&C Banking segment was the strongest point, reporting adjusted net income of $417 million. This was up 16% from Q2 2018 bolstered by good revenue growth and lower provisions for credit losses.

BMO announced a 7% year-over-year increase in its quarterly dividend to $1.03 per share, representing a 4.1% yield. BMO stock also boasts a forward P/E of 10. Its post-earnings bump briefly put the stock into technically oversold territory in late May and it currently has an RSI of 38 as of this writing.

It is a close call between these two, but I like BMO’s value after its post-earnings dip.

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.

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