4 Top Canadian Bank Stocks for Dividend Investors

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) joins three other big names in Canadian bank stocks in a breakdown of buyability.

edit Four girl friends withdrawing money from credit card at ATM

Image source: Getty Images

Should Canadians be buying bank stocks right now, and if so, which ones? Banks are cyclical by nature, after all. And with a potential economic depression on the way, there may be too much risk for not enough reward in the financials sector. Today, let’s take a brief look at some of the best of the country’s major moneylenders.

Weighing growth versus stability in Canadian bank stocks

Bank of Nova Scotia, better known to investors and customers as Scotiabank, is one of the hardest-hitting stocks in the Big Five. This name has been strongly resilient during the market crash. One of the main reasons for this resilience is that Scotiabank is nicely diversified across geographical regions. Of particular note in this capacity is Scotiabank’s exposure to growth potential in the Pacific Alliance trade bloc.

Bank of Montreal, also know as BMO, offers a 6.2% dividend yield. However, investors should be looking beyond yield right now, unless their financial horizons are especially narrow. BMO is a solid choice for a retirement investor and would help to round out an RRSP. Long-term investors, such as millennials padding out a TFSA, may want to pack a bit more growth potential in with their dividend stocks, though.

The generic market leader versus the outsider play

Toronto-Dominion Bank is one of North America’s most strategically significant banks and a major player on the world stage. TD Bank has seen steep growth as a result of its expansion deeper into the U.S. financial markets.

This could now be stalling, as our closest neighbour undergoes not only a major financial correction, but also something of a political reckoning. Growth investors may prefer to buy Scotiabank, while the low-risk buyer may favour a more Canada-centric pick.

Consider Laurentian Bank. This is a heavily Quebec-focused option and a strong pick beyond the small world of the Big Five. One of the healthiest bank stocks on the TSX, this schedule one lender also packs a meaty 8.9% dividend yield.

Laurentian Bank shares are exceptionally good value for money, with a P/B ratio of around half its book price. The stock is a buy for any investor looking at names like Tangerine or President’s Choice Bank.

Packing a couple of Canadian banks in a stock portfolio for the long term is a solid play. This is because banks are essential to the economy. Their dividends are largely seen as secure and are defensive so long as the economy itself holds up.

Value needs to be balanced against risk, though. Falling interest rates, deteriorating mortgage quality, and growing personal debt remain serious near-term threats.

The bottom line

Bank investors gauging the best names have opportunities to build and trim in the current market. This method will allow an investor to build a position at decreasing cost. Weaker names can be trimmed on rallies, while better-performing moneylenders can be built on weakness. It also allows an investor to reduce the capital risk inherent in backing up the truck on any one name.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Generate Enough Passive Income to Retire

Looking to generate a stream of passive income to retire on? Here are several stocks to start building out your…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »

worry concern
Dividend Stocks

3 Stocks to Buy if You Are Worried About a Recession

There are a lot of safe investments that can help your portfolio remain afloat during a recession and the market…

Read more »

Two colleagues working on new global financial strategy plan using tablet and laptop.
Dividend Stocks

2 Canadian Dividend Stocks I Just Bought During the Selloff 

There are plenty of high-quality investments to consider today, but these two Canadian dividend stocks are easily among the best.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Top 3 Utility Stocks for Stability and Consistent Income

These utility stocks could continue to return cash, irrespective of the volatility in the market.

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Tradeoff: Lower Home Prices for Higher Debt Burden

Buyers welcome lower home prices but more rate hikes will increase their financial burdens.

Read more »

Dividend Stocks

1 Top REIT to Buy Amid Housing Price Cooldown

Consider investing in this Canadian REIT if you want to capitalize on the housing price cooldown right now.

Read more »

stock analysis
Dividend Stocks

TFSA Passive Income: 2 Oversold Dividend Stocks for Self-Directed Investors

These top TSX dividend stocks look cheap right now.

Read more »