The S&P/TSX Composite Index rose 54 points on Wednesday, May 17. Meanwhile, the S&P/TSX Capped Financial Index moved up just shy of 1% during the same trading session. Today, I want to compare one of the Big Six Canadian bank stocks to one of the country’s top regional banks. I’m more inclined to snatch up the underdog in the second half of May. Let me explain my reasoning in this piece.
What is the difference between the Big Six banks and a regional bank?
During the Great Recession, Canada’s top financial institutions enjoyed a huge reputational win as our banks came out relatively unscathed in comparison to their peers south of the border. Indeed, the Big Six Canadian banks have pressed a conservative style and have historically required strict underwriting requirements. This helped Canada avoid the avalanche of bad mortgages that nearly torpedoed the United States and global financial system in the late 2000s.
Canada’s regional banks are not as free wheeling as their counterparts in the United States. However, they are typically more willing to take on risk in comparison to the Big Six.
Here’s why National Bank is flying under the radar in 2023
National Bank (TSX:NA) is the smallest of the Big Six Canadian bank stocks by market cap. However, National Bank is still a major fixture in its home province of Quebec. Shares of this bank stock have increased 2.9% month over month as of close on May 17. The stock is now up 11% so far in 2023.
This top Quebec-based bank is expected to unveil its second-quarter fiscal 2023 earnings before markets open on May 31. In the first quarter of fiscal 2023, National Bank saw adjusted net income drop 3% year over year to $905 million, or $2.56 per diluted share. However, the bank did deliver net income growth of 10% and 16%, respectively, in its Personal and Commercial Banking and Wealth Management segments.
Shares of this bank stock currently possess a favourable price-to-earnings (P/E) ratio of 10. Moreover, National Bank offers a quarterly dividend of $0.97 per share. That represents a 3.8% yield.
The case for this Quebec-based regional bank
Laurentian Bank (TSX:LB) is a Montreal-based regional bank stock that boasts a strong footprint in its home province of Quebec. Its shares have dipped 1.9% over the past month. Meanwhile, the bank stock is down 4.8% in the year-to-date period at the time of this writing.
Investors can expect to see Laurentian’s next batch of fiscal 2023 results before markets open on June 1. In the first quarter of 2023, adjusted net income fell 9% to $54.3 million, or $1.15 per diluted share. However, on the positive side Laurentian hit a milestone with its launch of its “reimagined” VISA experience. Management expects that this will grow the Laurentian brand and attract new Canadian consumers. Total revenue increased 1% to $260 million, while provisions for credit losses also rose to $15.4 million.
Deposits and loans at this regional bank both rose marginally compared to the prior year. Shares of this bank stock currently possess a very favourable P/E ratio of 6.3. Meanwhile, Laurentian offers a quarterly dividend of $0.46 per share, which represents a very strong 5.9% yield.
Why I’m running with the regional bank stock ahead of the summer season
Laurentian Bank cannot measure up to National Bank’s flawless balance sheet, but it does still boast fantastic liquidity. Meanwhile, the regional bank stock offers great value at the time of this writing. Moreover, it offers a much stronger dividend payout. You can’t go wrong with National Bank as a long-term hold, but I’m in love with Laurentian’s value and income offering right now.
