Better Buy: Bank of Montreal or Bank of Nova Scotia Stock?

Bank of Montreal (TSX:BMO) and Bank of Nova Scotia (TSX:BNS) both offer nice value, but one is a cut above when it comes to income.

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The S&P/TSX Composite Index was down 267 points in early afternoon trading on Tuesday, May 2. Meanwhile, the S&P/TSX Capped Financial Index was down 2.0% as many of the top Canadian bank stocks suffered a sharp retreat on the same day. In this piece, I want to compare two of the Big Six Canadian bank stocks: Bank of Montreal (TSX:BMO) and Bank of Nova Scotia (TSX:BNS). Which is the better buy in early May? Let’s jump in.

The case for Bank of Montreal stock in early May

Bank of Montreal is the third largest of the Big Six Canadian bank stocks by market cap. This Montreal-based bank stock was down 3.04% in early afternoon trading at the time of this writing on May 2. Its shares have dropped 5.1% so far in 2023. Meanwhile, the stock is down 12% year over year. Investors can look deeper at its recent performance by playing with the interactive price chart below.

Investors can expect to see BMO’s second-quarter (Q2) fiscal 2023 earnings in late May. In Q1, the bank delivered adjusted net income of $2.27 billion, or $3.22 per share — down from $2.58 billion or $3.89 per share in Q1 of fiscal 2022. Meanwhile, its Canadian Personal and Commercial (P&C) segment posted adjusted net income of $980 million — down 2% compared to the prior year.

Only TD Bank boasts a larger United States footprint than BMO among the Big Six. In Q1 2023, BMO reported adjusted net income growth of 3% to $699 million in its U.S. P&C banking segment. Both P&C segments benefited from higher net interest income. Moreover, BMO Wealth Management and Capital Markets segments suffered double-digit percentage dips in adjusted net income.

Shares of this bank stock currently possess a favourable price-to-earnings (P/E) ratio of 7.4. Meanwhile, BMO offers a quarterly dividend of $1.43 per share. That represents a solid 4.8% yield.

Why you can’t overlook Bank of Nova Scotia right now

Bank of Nova Scotia is often referred to as “The International Bank” due to its significant global exposure, particularly in Latin America. Shares of this bank stock were down 2.47% in early afternoon trading on May 2. The stock is still up 0.91% in the year-to-date period.

This bank is also set to unveil its next batch of fiscal 2023 earnings in the weeks ahead. In the first quarter of fiscal 2023, Scotiabank delivered adjusted net income of $2.36 billion, or $1.85 diluted earnings per share — down from $2.75 billion, or $2.15 per diluted share, in Q1 of fiscal 2022.

Scotiabank reported adjusted earnings of $1.08 billion in its Canadian Banking segment, powered by strong asset and deposit growth. Meanwhile, adjusted earnings in its International Banking segment climbed 20% year over year to $661 million.

Shares of Bank of Nova Scotia last had an attractive P/E ratio of 9.1. It offers a quarterly dividend of $1.03 per share, which represents a tasty 6.2% yield.

The verdict

These bank stocks are comparable when it comes to value offered ahead of their Q2 fiscal 2023 earnings release. However, I’m more inclined to snatch up Bank of Nova Scotia for its beefy dividend in the middle of the spring season.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has positions in Toronto-Dominion Bank. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

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