The TSX’s financial sector, led by Canada’s Big Five banks, continues to outperform the broader market after three trading days in September. All have double-digit gains thus far in 2021, with Canadian Imperial Bank of Commerce as the top advancer (+36.82%).
However, second-tier lenders National Bank of Canada (TSX:NA) and Laurentian Bank (TSX:LB) show better performances than their larger industry peers. Both are reliable dividend payers, too, so income investors should have room in their portfolios for these two top-performing bank stocks.
Solid returns for shareholders
Canada’s sixth-largest bank benefits from the vastly improving macroeconomic outlook. National Bank of Canada delivered another strong performance in Q3 fiscal 2021 (quarter ended July 31, 2021). Its net income rose 39% to $839 million versus Q3 2020. For the three-fourths of the fiscal year, net income is $2.4 billion — a 51% year-over-year increase.
Louis Vachon, its president and CEO, said, “We remain focused on our strategic objectives in order to deliver solid returns for our shareholders while maintaining prudent allowances for credit losses and a high level of capital.” Its U.S. Specialty Finance and International business segment also reported significant increases in revenues.
The combined revenue of subsidiaries Credigy (U.S.) and ABA Bank (Cambodia) was 18% higher than in Q3 fiscal 2020. Regarding the stock’s performance, investors enjoy a 39.23% year-to-date gain. At $97.56 per share, the dividend yield is 2.91%. There’s room for dividend growth in the near term, given the low 34.93% payout ratio.
In July 2021, the $33.14 billion bank increased its equity interest in Flinks Technology from 28% to 80%. National Bank’s investment in the leading fintech company is through NAventures, the bank’s venture capital arm. According to management, the bank is now well positioned in the fintech ecosystem — a high-growth market.
Pivot from traditional banking
Laurentian Bank’s market cap is only $1.83 billion, but it boasts a solid financial foundation and good diversification. Performance-wise, the bank stock is up 37.25% year to date. At $42.02 per share, the dividend offer is 3.81%. The payouts are safe and sustainable, given the 37.91% payout ratio.
For the three months and nine months ended July 31, 2021 (fiscal 2021), net income climbed 71% and 107%, respectively, versus the same periods in fiscal 2020. Laurentian Bank’s president and CEO, Rania Llewellyn, said the strong momentum in the first half of fiscal 2021 continued in the third quarter.
Besides cost discipline, Llewellyn credited the strong performance of the Real Estate Financing, a solid quarter from Capital Markets, and lower credit loss provisions for the stellar financial results. A lot has changed since Laurentian Bank migrated all B2B bank products and loans to a new core banking system in 2019.
Likewise, management completed the conversion of Laurentian’s traditional branch network to a 100% Advice model. Besides the increased customer focus, the ongoing concerns are expanding geographic footprint and evolving to higher-margin commercial loans. It should result in profitable growth in the future.
Canada’s Big Five banks made considerable profits in Q3 fiscal 2021, which confirms the banking sector is the bedrock of stability. National Bank of Canada and Laurentian Bank are sixth and ninth banks in the hierarchy. Nonetheless, both are attractive investment options. The dividends are rock steady and should last for years