TSX Bank Stocks: Worth Buying After Earnings Season?

Scotiabank (TSX:BNS)(NYSE:BNS) satisfies a range of investing styles. But should investors wait to pick up shares at a lower price?

| More on:

Canada’s biggest banks just turned in a bumper crop of earnings beats. But the bullishness in financials at the moment could be overlooking a more bearish outlook. Let’s take a look at three of the best picks from this space.

Watch these bank stocks in 2021

Scotiabank (TSX:BNS)(NYSE:BNS) is up 17% in the last four weeks. If nothing else indicates a bank stock worth holding, its most recent quarterly beat should. Banks have had a rough ride in the last year. Scotiabank is still negative for the last 12 months by around 10%. But its most recent quarter suggests that there is indeed a light at the end of the tunnel. And for new investors, its 5.4% dividend yield is both rich and competitive.

In fact, Scotiabank can compete across the board – and not just with other bank stocks. From excellent balance sheet health to a well-covered distribution, this is one healthy ticker. As touched on a moment ago, Scotiabank is good value for money. It trades with a discount of 20% off its fair value. There could be some earnings growth ahead, too. That’s rare for a bank. But around 8.5% could be added annually in this regard.

BMO (TSX:BMO)(NYSE:BMO) fared less well than Scotiabank this earnings season. However, BMO still managed to pull a fairly decent quarter out of the bag. While it as something of a clean sweep for Big Five/Six banks in the most recent quarter, BMO is a particularly solid buy. From diversified asset management exposure to a 4.3% dividend yield, BMO has remained a popular bank stock to buy in 2020.

BMO CEO Darryl White prefaced earnings season with an upbeat appraisal. “While the path of the pandemic and the economic recovery remains uncertain, we now know that vaccines will be available relatively soon.” White struck a hopeful tone, adding, “There’s good reason to be optimistic about the associated economic recovery accelerating as 2021 progresses.”

A rough year ahead

RBC CEO Dave McKay introduced a note of caution, though. Speaking on a conference call this week, Dave McKay painted a pessimistic picture, saying, “We expect mortgage growth to slow going forward as pent-up housing demand begins to cool.” While banks have posted better than expected quarterly results, the emphasis going forward will be on growth, therefore. Or, rather, the lack of it.

Stocks like RBC, BMO and Scotiabank satisfy a range of investing styles. But investors may want to wait to pick up shares at a lower price if they’re going long on dividend stocks. Next year could provide ample opportunities to pick up cheaper shares. While the current bullishness in banks is reassuring, better value will likely be had once the economic realities of a post-pandemic market become clearer to see.

In summary, 2021 could be a tougher year for banks. Investors have cut moneylenders some slack during the lockdowns. But a recovering economy is likely to be intensely performance-based. There is the potential for expectations to be undermined by slowing activity at exactly the time when shareholders are looking for growth. In short, banks were running on fumes in 2020; next year will be all about how to refuel.

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

Canadian flag
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 8% to Hold for Decades

Do you want some dividends with those returns? Then buy this stock while it's down.

Read more »

calculate and analyze stock
Dividend Stocks

2 Stocks That Cut You a Cheque Each Month

These two top Canadian monthly dividend stocks could help you generate reliable passive income for years to come.

Read more »

engineer at wind farm
Dividend Stocks

Fortis Stock: Buy, Sell, or Hold in 2025?

With Fortis now trading just off its 52-week high, is it still one of the best Canadian stocks to buy…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

The 3 Best Canadian Stocks to Buy Now and Hold Forever in an RRSP

There's a lot to consider when eyeing up some long-term holds in an RRSP, so let's get into it.

Read more »

Canadian dollars are printed
Dividend Stocks

1 Superior Canadian Dividend Stock Down 7% to Buy in Bulk

Just because stocks are down doesn't mean you should ignore them. This one, you should buy up in bulk.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks for Worry-Free Passive Income

These three stocks all offer attractive and consistently growing dividends, making them ideal passive-income generators for your TFSA.

Read more »

rail train
Dividend Stocks

Outlook for Canadian National Railway Stock in 2025

Other than a safe dividend yield of 2.4%, the blue-chip stock also offers solid long-term returns potential at current levels.

Read more »

doctor uses telehealth
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

Looking for passive income during this trying time? Consider this dividend stock for ultimate income.

Read more »