The S&P/TSX Composite Index was up 148 points in early afternoon trading on Wednesday, March 29. Today, I want to compare two top Quebec-based Canadian bank stocks: Bank of Montreal (TSX:BMO) and National Bank (TSX:NA). Quebec finance minister Eric Girard stated that the province faced considerable uncertainty coming into 2023. Indeed, it is facing many of the same issues that the world economy is currently wrestling with.
Here’s why you can trust the Canadian banking sector in this climate
Canada’s top banks have proven resilient in the face of previous economic strife. Our financial institutions managed to largely sidestep the worst of the Great Recession. History has repeated itself to some degree as middle-tier United States banks like Silicon Valley Bank and Signature Bank collapsed after investing heavily in mortgage-backed securities and treasury bonds. The central bank policy shift towards higher interest rates made this strategy unfeasible in the near term.
Canadian financial institutions have stiff regulatory requirements which have shielded them from volatility in the past. However, investors should expect challenges as banks navigate this period of quantitative tightening. The Bank of Canada (BoC) recently stated that it is not expected to draw down on this policy until 2025.
Why Bank of Montreal stock looks enticing today
Bank of Montreal is the third largest of the Big Six Canadian banks by market cap. The Montreal-based bank was up 1.24% in mid-afternoon trading on March 29. Its shares have dropped 4.7% in the year-to-date period.
This bank boasts one of the largest U.S. footprints of its peers. Its U.S. Personal and Commercial Banking segment outpaced domestic operations in the first quarter of 2023. Adjusted net income increased 3% year over year to $699 million with the stronger U.S. dollar also having a positive overall impact. The bank struggled in its other major segments in the opening quarter of 2023.
Shares of this bank stock currently possess a very favourable price-to-earnings (P/E) ratio of 7.4. Relative Strength Index (RSI) is a technical indicator that measures the price momentum of a given security. BMO spent most of the month of March in technically oversold territory. Moreover, it offers a quarterly distribution of $1.43. That represents a solid 4.8% yield.
Don’t sleep on the smallest of the Big Six bank stocks
National Bank has the smallest market cap of its peers among the Big Six Canadian banks. However, National Bank remains a giant in its home province of Quebec. Its shares were up 1.49% in mid-afternoon trading on March 29. The stock has climbed 3.1% so far in 2023. That makes National Bank one of the best performers of its peers in the year-to-date period.
In the first quarter of 2023, National Bank delivered a first quarter profit of $881 million — down from $930 million in the first quarter of fiscal 2022. Meanwhile, revenue rose to $2.58 billion compared to $2.47 billion in the prior year. Overall, the bank beat out analyst expectations to kick off a potentially challenging year.
This bank stock last had a favourable P/E ratio of 10. Moreover, it offers a quarterly dividend of $0.97 per share, which represents a 4.1% yield.
Which is the better buy today?
National Bank has been the better performer so far in 2023. However, I prefer Bank of Montreal’s value and superior dividend yield, as we look to close the book on a volatile March.