Canadian bank stocks are value stocks that tend to trade at reasonable price-to-earnings ratios (P/E) for the typical long-term, single-digit earnings-growth rate they experience. These dividend stocks have corrected from their 52-week highs, which has made some more attractive than others.
Canadian Western Bank stock
Canadian Western Bank (TSX: CWB) stock had a tremendous run, appreciating more than 150% from the pandemic market crash bottom of about $16 in March 2020 to over $40 per share in late 2021. It has since retreated to a good value. The bank stock has been more volatile than its bigger Canadian bank peers because of its smaller size and greater exposure to the resource-rich province of Alberta.
That said, Canadian Western Bank has reduced its loan exposure in Alberta to about 31% of its loans. Investors should note that it also has meaningful loan exposure of 33% and 24%, respectively, in British Columbia and Ontario.
At $32.69 per share at writing, the undervalued bank stock trades at about 8.5 times earnings. It could easily be a $40 stock. Patient investors can even have a multi-year price target of $45-50, which implies upside potential of 37-53%. In the meantime, investors can get started with a yield of close to 3.7%. Notably, CWB is a Canadian Dividend Aristocrat with a 30-year dividend-growth streak!
Canadian Western Bank has a market cap of about $2.9 billion. Some investors would rather put their money in the Big Five Canadian bank stocks instead. If so, Toronto-Dominion Bank (TSX: TD)(NYSE: TD) stock is a good consideration.
TD Bank stock
The dividend stock has retreated meaningfully by approximately 15% from its high of $108 in February. At $91.69 per share at writing, TD stock is sitting on its 200-day simple moving average, which is acting as support for now. Valuation-wise, the bank stock is fairly valued, trading at about 11.4 times earnings, which is close to its long-term normal P/E of about 11.8.
TD Bank has a fabulous retail franchise in Canada and the United States. So, its business performance will ebb and flow with the health of the North American economy. As long as you can sit through the occasional recessions and market downturns, you can expect the bank to increase its earnings by 7-9% annually in the long run. And, of course, it also pays out a safe dividend, which yields close to 3.9% at writing.
Scotiabank stock
While TD stock is a solid long-term investment, some investors prefer great passive income today. Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) stock offers a bigger yield of roughly 4.8%. At $83.69 per share at writing, BNS stock has retreated more than 10% from its high in February. It is also undervalued by about 15%.
The bank employs a different strategy than TD in that it is more international, with operations in Central and South America. As a result, it has experienced slower growth than TD Bank in the last decade. If history is telling, investors can expect the bank to increase its earnings by 5-6% annually in the long run. This also explains why Scotiabank stock usually trades at a lower P/E than TD stock.
