On Wednesday, April 12, the Bank of Canada (BoC) elected to hold its benchmark interest rate at 4.5%. Interest rates have remained static since climbing to 4.5% in January. Many have taken this as a sign that the broader economy has stabilized. However, BoC governor Tiff Macklem said that monetary policy would need to remain restrictive in the near term due to still-present risks. Today, I want to look at three bank stocks that are worth snatching up after this big announcement.
Bank stocks have encountered turbulence in the face of the BoC’s aggressive interest rate tightening policy. However, that should not sour investors on Canada’s largest financial institutions. On the contrary, higher interest rates work to bolster profit margins. We have already seen this bear fruit in recent earnings reports. Let’s jump in!
Image source: Getty Images
Here’s the first bank stock I’d look to snatch up in this interest rate environment
TD Bank (TSX: TD) is the second largest of the Big Six Canadian bank stocks by market cap. This bank holds over $1.9 trillion in assets. Its shares have climbed 7.1% month-over-month as of close on April 18. The stock is down 5% so far in 2023.
This bank released its first quarter fiscal 2023 earnings on March 2. TD Bank reported adjusted net income of $4.2 billion or $2.23 per diluted share – up from $3.8 billion or $2.08 per diluted share in the first quarter of fiscal 2022. Meanwhile, its Canadian Personal and Commercial Banking segment delivered net income growth of 7% to $1.7 billion. This was powered by higher margins and volume growth. The United States Retail Bank segment achieved record adjusted net income of $1.7 billion – up 31% from the previous year. These results were bolstered by loan growth of 9% while personal deposits remained static.
TD shares currently possess a favourable price-to-earnings ratio of 10. TD Bank offers a quarterly dividend of $0.96 per share. That represents a solid 4.6% yield.
Why I’m stacking BMO stock in the early spring season
Bank of Montreal (TSX: BMO) is the third largest Canadian bank stock by market cap. Like TD Bank, BMO also boasts a large footprint south of the border. Shares of this bank stock have jumped 5.4% over the past month. BMO stock is still down marginally in the year-to-date period.
In Q1 2023, BMO delivered adjusted net income of $2.3 billion or adjusted earnings per share (EPS) of $3.22 – down from $2.6 billion or $3.89 EPS in the prior year. The bank saw a year-over-year dip as its Wealth Management and Capital Markets segments suffered double-digit net income declines percentage wise. However, the Canadian P&C and U.S. P&C segments performed better on the back of strong net interest income growth.
This bank stock last had a very attractive P/E ratio of 7.7. Meanwhile, it offers a quarterly dividend of $1.43 per share, which represents a 4.6% yield.
One more bank stock to snatch up as interest rates hold steady
Scotiabank (TSX: BNS) is the third bank stock I’d look to snatch up in this interest rate environment. This bank stock is sometimes called “The International Bank” due to its exposure to global banking, particularly in Latin America. Shares of Scotiabank have climbed 5.9% so far in 2023.
The bank unveiled its first batch of fiscal 2023 earnings on February 28. Adjusted net income fell to $2.4 billion or $1.85 per diluted share compared to adjusted net income of $2.8 billion or $2.15 per diluted share in the first quarter of fiscal 2022. International Banking achieved net income growth of 20% to $654 million. That was powered by higher net interest income, non-interest income, and lower provision for income taxes.
Shares of this bank stock possess an attractive P/E ratio of 9.6. Scotiabank also offers a quarterly dividend of $1.03 per share, representing a very strong 5.9% yield.
