If you are looking to earn a regular stream of dividend income, investing in Canadian bank stocks may seem a good bet. Canada’s financial sector is heavily regulated, and the banks operating in the country are fairly conservative compared to their counterparts south of the border.
This allowed a majority of the banks in Canada to maintain dividends during the financial crash of 2009 as well as the onset of COVID-19. With these factors in mind, let’s see if Canadian Western Bank (TSX: CWB) should be part of your dividend portfolio in 2023.
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Canadian Western Bank has a yield of 4.5%
Canadian Western Bank started operations as a commercial lender, allowing it to focus on a more targeted approach. This enabled the company to operate as a regional bank and serve midmarket commercial clients while increasing market share in Western Canada
Over the years, CWB has expanded its portfolio of products and services while its acquisitions have broadened its commercial footprint and added relevant financial solutions for business owners. CWB is optimistic about its business model, given the complex nature of the banking industry.
Valued at a market cap of $2.7 billion, Canadian Western Bank ended fiscal 2022 (ended in October) with $1.07 billion in revenue. In fiscal 2019, its revenue stood at $861 million. CWB stock is reasonably priced, given its valued at 2.3 times forward sales and 7.9 times forward earnings.
It also offers a dividend yield of 4.5%. In the last 20 years, its dividend payouts have increased at an annual rate of 12.8% which is quite exceptional.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Canadian Western Bank | $28.44 | 352 | $0.32 | $112.64 | Quarterly |
CWB continues to deliver consistent growth as its loan book has grown by 11% annually between 2008 and 2022. The company explains that full-service relationships help improve ROE (return on equity) on the back of higher fee income in verticals such as cash management and wealth management. Its full-service client penetration also improved to 41% at the end of fiscal 2022.
What’s next for CWB stock price and investors?
Canadian Western Bank’s primary target segment is mid-market businesses that generate revenue between $5 million and $100 million. These businesses are big enough to have stable financing, cash management, and private banking requirements.
In 2020, CWB made a critical wealth acquisition, allowing it to triple its assets under management and expand non-interest revenue. Its non-interest revenue accounted for 26% of total sales in fiscal 2022, compared to 9% of sales prior to the acquisition, diversifying its cash flows.
CWB believes a majority of mid-market businesses in Canada are underserved, indicating the company has enough room to keep expanding in key geographies.
Its lending approach is quite robust, as CWB’s net write-offs as a percentage of average loans have fallen from 0.26% in 2011 to 0.07% in 2022.
Now, Canadian Western Bank aims to increase its return on equity to 12% in 2024, from 10% in 2022, driven by revenue growth, expense management, stable credit losses, and capital efficiency.
The Foolish takeaway
Given its tasty dividend yield, an investment of $10,000 in CWB stock will allow you to earn $450 in annual dividends. But allocating such a huge sum towards a single stock is not advisable. You need to identify similar TSX stocks that pay juicy yields and diversify your equity portfolio.
