Why You Should Invest in Bank Stocks Today

Many Canadians may be hesitant to invest in the stock market after the recent market crash. Find out why bank stocks can be a great long-term investment.

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The market volatility we’ve witnessed this year has probably had many investors wishing they weren’t invested in the stock market. In times like these, we need to remind ourselves that if we can see growth of more than 20% in one year, then years like 2020 will happen.

Rather than planning on which company you’d sell off first if you needed the cash, let’s instead focus on what we should be buying. Put yourself in the mindset that any company you buy you will be holding for at least five years. And you will be holding the stock regardless of the state of the economy, no matter how tempting it may be to sell.

With so many great companies on sale today, it can be difficult to choose which one to buy. Start by narrowing it down to an industry that you would be interested in investing in. Most industries across the board have seen a significant pullback from the market crash this year.

Once you’ve decided on the industry you’d like to invest in, pick a market leader. Decide on a company that you think will continue to be a market leader for many years to come.

We’ll cover one of Canada’s largest banks and what makes it a market leader. An investment in this bank today will likely reward long-term investors very well in the future.

Invest in a bank

The Great Recession just over a decade ago likely has scared many investors from owning bank stocks. However, Canadian banks have rebounded very well since 2009. Today, Canadian bank stocks can provide shareholders with stability, growth potential, and a strong dividend.

At a market cap of roughly $110 billion, TD Bank (TSX:TD)(NYSE:TD) is the second-largest bank in the country. The bank divides its business into three main revenue sources: Canada Retail, U.S. Retail, and Wholesale Banking.

Growth potential

TD Bank now operates more than 2,000 retail locations across North America. The U.S. is a huge growth driver for the future of the bank. TD is already ranked in the top 10 U.S. banks based on asset size, and there is still plenty of growth ahead.

TD has mostly invested in the east coast of the U.S. to date, leaving plenty of growth ahead in expanding into the west. Expanding into the west isn’t the only growth driver TD is focusing on, though.

The bank is currently expanding into the wealth and commercial management sector. Traditionally, the bank has focused on personal and commercial bank services, but the wealth management division is already becoming a significant revenue contributor for the company.

Dividend yield

Banking is one of the top industries for dividend-income investors in Canada. Each of the top six Canadian banks pays a very respectable dividend today, and TD is no different.

The bank currently pays an annual dividend of $3.16 per share, which is spread out over four quarterly dividend checks. At a stock price of $60, a $3.16 dividend is equal to a very respectable yield of 5.25%.

If a $10,000 investment was made today in TD, investors could expect to receive a check of $130 four times a year.

Foolish takeaway

With many industry leaders seeing a significant pullback in price, now is a great time for a substantial investment in the stock market.

Investing in any of the top banks today would be a smart decision for a Canadian investor. But I believe that TD is in the strongest long-term position today due to the growth potential from both the U.S. and the entry into new business sectors.

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 Nicholas Dobroruka has no position in any of the stocks mentioned.

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