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Ranking the Big Six Bank Stocks in September

Bank sign on traditional europe building facade
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In August, I’d discussed why I was loading up on bank stocks ahead of third-quarter earnings season. Investors have now had a chance to look at Q3 2020 earnings at each of Canada’s top banks. There was a broad improvement from a tough second quarter, but there are still massive challenges ahead for the top financial institutions. Today, I want to rank the top bank stocks from worst to best in the middle of September. Let’s dive in.

The sixth-ranked bank stock: National Bank

National Bank is the smallest of the Big Six banks and the last bank on my ranking today. It was difficult to place National Bank last after its positive third-quarter 2020 results. The bank suffered a marginal retreat from the prior year. Shares of this bank stock have climbed 9.6% month over month.

Its stock last had a price-to-earnings (P/E) ratio of 12 and a price-to-book (P.B) value of 1.8. This is in line with the average among its top banking peers. Meanwhile, it offers a quarterly dividend of $0.71 per share. Unfortunately, this is where National Bank falls behind. This represents a 3.9% yield, the only bank stock to fail to offer at least a 4% dividend yield.

Five: Bank of Montreal

Bank of Montreal is my fifth-ranked bank stock today. Its shares have climbed 4.2% month over month. However, the bank stock is still down 16% in 2020.

The bank beat expectations in Q3 2020, as it was able to draw down on its provisions for credit losses. Its shares last had a P/E ratio of 11 and a P/B value of one, which puts it in favourable value territory relative to its peers. It offers a quarterly dividend of $1.06 per share, representing a strong 5.2% yield. BMO boasts an excellent balance sheet, albeit one not quite on par with the final four in this ranking.

Four: Royal Bank

Royal Bank is the largest financial institution in Canada. Its stock has increased 8.3% over the past three months. The stock is still down 1.6% in 2020.

Shares of Royal Bank offer a solid P/E ratio of 12 and a P/B value of 1.7. Meanwhile, it last delivered a quarterly dividend of $1.08 per share. This represents a 4.4% yield. Moreover, Royal Bank possesses an immaculate balance sheet. This bank stock doesn’t offer the best value or dividend, but Royal Bank remains one of the most important banks in the world. Its size and dependability earn its ranking today.

Three: Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce comes in third in this ranking. Its stock has climbed 5.7% over the past month. Shares last had a favourable P/E ratio of 11. CIBC still offers one of the best dividends of its peers. It last delivered a quarterly dividend of $1.46 per share, which represents a strong 5.6% yield. Better yet, CIBC boasts a flawless balance sheet.

Two: Toronto-Dominion Bank

TD Bank is my second-favourite bank stock in the middle of September. Its stock has been flat since its earnings release, and shares are still down 9.7% in 2020. TD Bank possesses a P/E ratio of 12 — in line with its peers. It last paid out a quarterly dividend of $0.79 per share. This represents a 4.9% yield. Like the previous two in this ranking, TD Bank also possesses an immaculate balance sheet.

The top bank stock: Scotiabank

Scotiabank is my number one bank stock pick today. In late August, I’d discussed why I was high on Canada’s “International Bank.” Shares of Scotia have dropped 20% so far this year. Latin America has been hit hard by the COVID-19 pandemic, which has taken its toll on Scotia’s global banking earnings.

However, the stock possesses an attractive P/E ratio of 9.7. Moreover, it offers a quarterly dividend of $0.90 per share, representing a tasty 6.5% yield. Better yet, Scotia also has a flawless balance sheet.

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 owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK. The Motley Fool recommends BANK OF NOVA SCOTIA.

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