3 Top Bank Stocks to Buy in July 2021

Looking for the top bank stocks to buy in July 2021? Here are three Canadian bank stocks you should consider for above-average income.

| More on:
edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The big Canadian bank stocks are core holdings in many investor portfolios. There are good reasons for that. The banks have paid dividends for decades. In the last two decades, they have increased their payouts in most years.

The banks’ dividend increases are supported by sustainable payout ratios and steady earnings growth. From the dividend and earnings growth, investors have generated roughly market returns over the long haul while receiving above-average income.

Here are three top bank stocks investors can buy in July 2021. They’re reasonably valued at this point in time. Of course, you can also buy more shares pretty much any time there’s a meaningful correction.

Right now, the Canadian market yields about 2.6%. In comparison, the top bank stocks to buy below provide yields of 3-3.6%. The bank yields are at the low end of historical levels because of a period of dividend freeze through the pandemic. Regulators have prevented the banks from raising their dividends as a precaution. The ban is expected to lift as pandemic impacts subside.

Royal Bank of Canada

Royal Bank of Canada (TSX:RY)(NYSE:RY) has a diversified business mix. Its key earnings contributors in the last 12 months are as follows: 46% from personal and commercial banking, 28% from capital markets, and 17% from wealth management. Its core business is in North America, generating about 58% of revenues in Canada, 26% in the United States, and 16% in other countries.

From fiscal 2007 to 2019, the bank compounded its earnings per share by approximately 6.5% per year. This period was chosen, as it covers the business cycle that included a Great Recession and the subsequent economic recovery. RBC stock has kept the same quarterly dividend for six consecutive quarters.

At just under $128 per share at writing, the leading bank stock is reasonably valued with a blended price-to-earnings ratio of about 12.9. It offers a 3.4% yield, and its forward payout ratio is projected to be roughly 40%. So, expect a nice dividend hike as soon as the regulators allow it.

Toronto-Dominion Bank

Other than Royal Bank, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) also has a leading position in the banking sector. Specifically, TD Bank focuses on Canadian and U.S. retail banking. The quality bank also has a wholesale banking that caters to bigger clients.

From fiscal 2007 to 2019, the bank compounded its earnings per share by approximately 7.3% per year. TD stock has kept the same quarterly dividend for six consecutive quarters.

At below $85 per share at writing, the leading bank stock is reasonably valued with a blended price-to-earnings ratio of about 12.3. It yields 3.6%, and its forward payout ratio is projected to be roughly 42%. So, like RBC stock, TD stock can also healthily increase its dividend soon.

National Bank of Canada

National Bank of Canada (TSX:NA) has a diversified business mix consisting of personal and commercial banking (40% of revenues), financial markets (25%), wealth management (24%), and U.S. specialty finance and international (11%). Particularly, its U.S. specialty finance and international and financial markets operations were higher profit businesses last year.

From fiscal 2007 to 2019, the bank compounded its earnings per share by approximately 7% per year. National Bank stock has maintained the same dividend for seven straight quarters.

At about $94 per share, the bank is reasonably valued and provides a yield of about 3%. Its forward payout ratio is anticipated to be about 33%. So, it’s possible that the sixth-largest Canadian bank can make a massive dividend increase compared to its bigger peers when the regulators lift the ban.

The Foolish investor takeaway

The top three Canadian bank stocks introduced are great long-term holdings for above-average income and providing roughly market returns. They’re fairly valued today. Interested investors might consider nibbling now and add to their positions on meaningful corrections of more than 10%.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Kay Ng owns shares of  Royal Bank of Canada and Toronto-Dominion Bank.

More on Bank Stocks

stock data
Stocks for Beginners

Are You Starting a Stock Portfolio? If Yes, Keep It Safe and Simple

First-time investors should keep their stock portfolios safe and simple by holding time-tested, income-producing assets.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Bank Stocks

The Most Valuable TSX Stock Out There Is up 10% This Month!

This TSX stock is the best value stock out there, expanding even during a downturn and setting itself up from…

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »

work from home
Bank Stocks

Where Should Canadians Invest $500 Right Now? How About the “Best Bank for Your Buck?”

TD Bank (TSX:TD)(NYSE:TD) stock is a Dividend Aristocrat that looks too cheap to ignore as rates surge.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Growth from coins
Dividend Stocks

What’s More Effective: 1 Growth Stock or 1 Dividend Stock for High Returns?

Let's settle the age old debate. If you had invested in a huge growth stock or a solid dividend stock,…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Why I Prefer Banks to Oil Stocks for 2022’s 2nd Half

Right now, I like bank stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) more than oil stocks.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Stocks for Beginners

2 Big Bank Stocks to Own for Lifelong Income

These two Big Bank stocks are ideal staple holdings for newbie investors seeking a lifetime of passive income.

Read more »