Canada’s big banks are among the best investments on the market. Solid growth, reliable revenue, and a generous dividend are just a few of the reasons why investors flock to banks. Even better, market volatility has exposed investors to some cheap banking stocks to buy now at a discount.
Here are two options to consider for your long-term portfolio.
Consider Canada’s most international bank
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is neither the largest nor the most well-known of Canada’s big banks. Instead, it’s known as Canada’s most international bank. Of late, it’s also become one of the cheap banking stocks to buy now at a huge discount.
Like its big bank peers, Scotiabank boasts a strong domestic branch network. In the most recent quarter, the domestic banking segment posted an income of $1,213 million. But that’s not where the bulk of Scotiabank’s growth comes from. For that, let’s look at the international banking segment.
International banking earned $625 million in the most recent quarter, reflecting a $139 million improvement over the prior period. And unlike its peers that are hyper-focused on growth in the U.S. market, Scotiabank has set its sights further south to Latin America.
Specifically, Scotiabank has invested heavily in growing its branch presence in Mexico, Columbia, Chile, and Peru. The four nations are members of a trade block known as the Pacific Alliance. The alliance is tasked with increasing trade between members and eliminating tariffs. In short, the segment is expected to provide a source of long-term growth for the bank.
But how cheap is Scotiabank right now and why should you buy it?
Despite the long-term potential, as of this writing, Scotiabank is trading just over $47, less than a dollar off from its 52-week low. Year-to-date, the stock has tumbled over 27%, nearly twice as much as the market.
Investors should note that the entire market has dropped – not just Scotiabank. And that drop can be largely attributed to recession fears, not anything the bank did or didn’t do. In short, now is an excellent time to pick up the stock, which carries a P/E (price-to-earnings) of just 7.76, a very discounted rate.
Even better, let’s talk about dividends. Scotiabank offers a juicy quarterly dividend that has seen its yield soar as the stock has dropped. The current yield works out to 6.35%, meaning that a $30,000 investment in Scotiabank will earn an income of just over $1,900. That income can quickly grow between annual bumps and reinvestments over longer periods.
The forgotten big bank with a history
Another intriguing big bank option that trades at a huge discount right now is Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). Like Scotiabank, CIBC has a strong domestic network that provides the bulk of its revenue along with stability. The bank also has a growing presence in the U.S.
Unfortunately, CIBC’s domestic network is more exposed than its peers to the still overheated real estate market. That perceived weakness has pushed the stock 20% lower this year. As of this writing, the bank is trading near its 52-week low, following the market.
That shouldn’t deter would-be investors looking for one or more cheap banking stocks. If anything, it should be an incentive to buy a great stock at a very discounted price. At its current price, CIBC trades at a P/E of 8.40 which is ahead of Scotiabank, but still on the discounted side.
That discount has helped swell CIBC’s dividend to a 5.68% yield. The bank has an incredible record of paying out dividends that goes back well over a century. Additionally, that payout remains well covered to this day despite the overall market weakness.
In terms of earnings, a similar $30,000 investment will earn an income of just over $1,700.
Buy these cheap banking stocks today, and never ever sell
The current discount on CIBC and Scotiabank can’t be overstated. In short, it’s a great time to pick up shares at a discount and let that juicy yield and reinvestments grow your portfolio. Both are well-positioned to not only weather a possible recession, but also emerge in a strong position.
In my opinion, one or both banks should form part of a well-balanced portfolio.
