National Bank Is Looking Like a Competitive Threat to its Peers

Here’s why National Bank of Canada (TSX:NA) is starting to look very appealing to long-term growth investors seeking financials exposure.

| More on:
consider the options

Image source: Getty Images

This global pandemic has not spared many sectors from volatility. Among the sectors hardest hit is the banking sector.

However, as with many economically sensitive sectors, banks have rebounded significantly of late. And National Bank (TSX:NA) is one of those smaller Canadian banks that has really outperformed of late.

National Bank is now trading well in excess of its pre-pandemic highs. In fact, in recent days, this stock has made new all-time highs.

Let’s look at why this is the case, and why investors are jumping on smaller regional banks right now.

Competition heating up

One of the primary theses behind the rise of Canadian small-cap banks like National Bank is the idea of an improved competitive landscape for these lenders.

Indeed, National Bank has done well to take advantage of the pandemic in creative ways its less-flexible, mega-cap peers haven’t been able to do. The lender recently launched its National Bank Direct Brokerage program to help its patrons cope with pandemic-related difficulties. This program has been a huge hit. Accordingly, National Bank has emerged as a leader in discount brokerage offerings among the leading brokerages in Canada.

With the rise of zero-fee trading and discount brokerage services taking off, National Bank is well positioned for growth. Canadian discount brokerages have been slower to adopt these policies compared to U.S. counterparts. However, investors in National Bank appear to like the direction this bank is heading.

Diversifying the company’s revenue streams in a fast-growing market appears to be something investors like. I’m of the view this move is one that could pay dividends for investors for a long time to come.

Bottom line

National Bank is an intriguing smaller bank I think has the growth potential to outperform its larger peers over the medium term.

However, investors need to decide whether this growth is already priced in at these levels. After all, National Bank has been among the best performers of its banking peers of late.

Those who bought this stock a long time ago and are still holding may look to simply hold from here. After all, this stock provides a relatively healthy dividend yield of 3% in addition to any capital appreciation investors may receive from here.

National Bank offers long-term investors with lots of growth upside relative to the sector. That said, it’s a higher-risk play, as all regional banks are. Currently, I’m on the sidelines with this name, though I do see the potential for outsized growth for aggressive investors. The risk/reward relationship with National Bank appears to be solid right now. Accordingly, investors looking to add some exposure to this name may continue to be well rewarded at these levels.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »