I’m about to make a pretty wild recommendation, given the current markets. The Canadian banks, even in this poor situation, continue to be some of the best places that Canadians can put their cash. Sure, shares are down now. But if you’re a long-term investor, then really that shouldn’t matter.
In fact, you could consider now a great time to get a deal on Canadian banks! If you look back in time, every bad economic downturn eventually led to a rise. So I would use this opportunity to your advantage and start investing today. Especially as you can then collect more dividends to reinvest in your Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP).
But what bank to pick?
If you’re looking at Canadian banks for their TFSA or RRSP, then you want a company that’s going to provide you with income for life. That income should come in the form of both dividends and returns. And one of the best options right now is Bank of Montreal (TSX:BMO).
Sure, it’s not the largest of the Big Six Banks. But it does offer a large dividend! Right now, investors can pick up a yield at 4.82% at the time of writing. That’s paid out on a quarterly basis, which comes to $5.72 per share annually.
Yet, with the crash in American banks, shares bottomed out by 16% in the last year. They dropped 12% in the last month alone! Which is why now is a great time to pick up this cheap stock among the other Canadian banks.
It’s a steal!
No matter how you slice it, BMO stock looks like it’s a steal among the Canadian banks. Shares currently trade at just 6 times earnings as of writing, and 1.3 times book value. And while shares may be down quite a ways in the last year, those shares are still up 178% in the last decade alone. That comes in at a compound annual growth rate (CAGR) of 10.8%.
Furthermore, the dividend has grown quite some during that time as well. In the last decade alone, the dividend has grown by a CAGR of 6.8%. So you can look forward to growth both in shares and income in the years to come.
Create $20,000 way faster than normal
Because BMO stock and the rest of the Canadian banks have taken a sizeable dip, you can look forward to a large increase in returns in a short period of time. After falling to their lowest point, the Canadian banks have historically rebounded to pre-fall prices well within a year’s time again and again.
If that’s the case, we could see BMO stock return to $154 per share in the next few months. Now that’s not to say you should put everything towards Canadian banks or BMO stock. So let’s say you have $3,000 you can put there today, with the addition of $1,000 per year. The first recovery is to pre-52 week highs. Then based on historic performance, here’s how long it would take to reach $20,000!
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | Compound Frequency | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
| 1 | 25 | C$5.74 | C$143.41 | quarterly | C$3,121.27 | C$1,000.00 | 32.41 | C$154.71 | C$5,013.85 |
| 2 | 32.41 | C$7.46 | C$241.68 | quarterly | C$5,260.24 | C$1,000.00 | 39.68 | C$171.40 | C$6,801.26 |
| 3 | 39.68 | C$7.96 | C$315.99 | quarterly | C$7,122.80 | C$1,000.00 | 46.64 | C$189.90 | C$8,856.65 |
| 4 | 46.64 | C$8.50 | C$396.62 | quarterly | C$9,259.99 | C$1,000.00 | 53.31 | C$210.39 | C$11,215.62 |
| 5 | 53.31 | C$9.08 | C$484.13 | quarterly | C$11,707.64 | C$1,000.00 | 59.71 | C$233.09 | C$13,917.80 |
| 6 | 59.71 | C$9.70 | C$579.08 | quarterly | C$14,505.98 | C$1,000.00 | 65.86 | C$258.24 | C$17,007.71 |
| 7 | 65.86 | C$10.36 | C$682.09 | quarterly | C$17,700.13 | C$1,000.00 | 71.78 | C$286.10 | C$20,535.26 |
And as you can see, after rising to former 52-week highs, it would only take seven years to earn over $20,000 in your portfolio! Even with Canadian banks as they are today.
