There’s a lot of anxiety out there, with ripples continuing to work their way through the banking sector. Rapid rate hikes finally caused something to “break,” and with that could come a slower pace of hikes moving forward. Indeed, the Bank of Canada seems to be a bit further ahead than the U.S. Federal Reserve.
Whether the U.S. continues raising rates as Canada holds off remains to be seen. Regardless, Canadian investors should focus less on rates, inflation, the macro picture, and economic variables and more on uncovering great companies at decent prices.
As a stock falls in price, its dividend yield tends to creep higher. Assuming a dividend is well covered, investors who buy such income stocks on the dip can get a lot more than they bargained for. In this piece, we’ll look at two bank stocks that should be on the radar of passive-income investors.
TD Bank
TD Bank (TSX: TD) is one of Canada’s most impressive banks. It managed through the Great Financial Crisis and the pandemic recession of 2020. And it’s likely to continue to hold its own as the 2023 recession rears its ugly head. Indeed, TD Bank stock took one on the chin in recent months. The recent wave of bank selling has not spared that top Canadian bank.
With a strong presence in the U.S., it’s not a mystery as to why TD stock has been feeling the heat a bit more than some of its peers of late. In any case, TD Bank doesn’t seem as at risk as the regionals (or even mega caps) south of the border.
Even if TD’s First Horizons deal is at risk, I continue to view TD as a growth-centric bank.
If anything, rapidly declining valuations in the U.S. market could allow TD to get a better bang for its buck come its next big deal down south. At 9.59 times trailing price to earnings, TD sports a 4.8% yield. I think the yield is worth biting on if you seek safe passive income.
Canadian Western Bank
Canadian Western Bank (TSX: CWB) is a regional Canadian bank that also took one to the chin, now off over 18% in around a month. Indeed, regionals have been scarier to own than the big banks due to their greater exposure to certain sources of failure. After the latest spill, CWB stock goes for 6.9 times trailing price to earnings alongside a 5.3% yield.
Sure, the regional bank has a lot of Albertan exposure. And if oil sinks considerably, the stock could be a choppy mover. In any case, it’s quite absurd that Canadian Western Bank would plunge due to the fall of a bank in Silicon Valley.
Indeed, Silicon Valley bank found itself in the blast zone of the tech sector’s painful 2022 blow-up. Canadian Western Bank is far from that blast zone, making the name a tempting stock for passive-income investors to watch.
Foolish takeaway for passive-income investors
The two bank stocks in this piece look undervalued and oversold. With bountiful dividend yields and a safe distance away from the SVB fall, I remain a raging bull on both Canadian banks.
