Canada’s Banking Giants: Are These Stocks Worth Your Money Today?

Canadian investors should watch top bank stocks like Royal Bank of Canada (TSX:RY) closely after another interest rate hike.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

The S&P/TSX Composite Index shed 71 points on Wednesday, June 7. The financials sector, which is the largest by overall market cap on the Canadian market, moved down marginally compared to the bigger losses in other sectors. However, Canada’s top bank stocks and their peers in the financial sector have struggled in the face of rising economic danger and interest rate hikes.

On Wednesday, June 7, the Bank of Canada (BoC) moved to increase the benchmark interest rate by another 25 basis points. That brings the overnight rate to 4.75%, putting additional pressure on a large population of stressed borrowers. Today, I want to discuss whether it is worth snatching up the top three bank stocks in the first half of June 2023. Let’s jump in.

Should you buy the top Canadian bank stock in early June?

Royal Bank (TSX:RY) is the largest Canadian bank stock and the largest TSX stock by overall market cap. This Canadian super bank boasts over $2 trillion in total assets. Its shares have dropped 6.2% month over month as of close on June 7. That pushed this bank stock into negative territory so far in 2023. Investors who want to see more of its recent performance can play with the interactive price chart below.

This bank and its peers increased its prime rate to 6.95% after the BoC interest rate hike. Royal Bank released its second-quarter (Q2) fiscal 2023 earnings on May 25. Adjusted net income dropped 13% year over year to $3.8 billion, or 11%, to $2.65 on a per-share basis. Meanwhile, provisions set aside for bad loans (provisions for credit losses, or PCL) shot up to $600 million. Royal Bank benefited from improved profit margins in this high interest rate environment, but that was offset by higher PCL and other headwinds.

Shares of this bank stock currently possess a solid price-to-earnings (P/E) ratio of 12. Moreover, Royal Bank offers a quarterly dividend of $1.35 per share. That represents a 4.3% yield.

Here’s why TD Bank should be on your radar today

TD Bank (TSX:TD) is the second-largest Canadian bank by total market cap, lagging just behind its top rival. This bank is notable for boasting the largest United States footprint of its peers. Indeed, TD Bank is a retail powerhouse south of the border. Shares of this bank stock have jumped 5.3% over the past month. The stock is down 11% in the year-to-date period.

In Q2 fiscal 2023, TD Bank reported adjusted net income of $3.75 billion, or $1.94 per diluted share, compared to $3.71 billion, or $2.02 per diluted share, in Q2 2022. TD Bank also saw PCL shoot up $187 million to $247 million. Revenue in its Canadian Personal and Commercial Banking segment rose 11% to $4.40 billion, while its U.S. Retail Bank posted adjusted earnings growth of 28% to $1.52 billion. Both benefited from improved margins and volume growth.

This bank stock last had a favourable P/E ratio of 9.8. It offers a quarterly distribution of $0.96 per share, which represents a solid 4.9% yield.

One more top Canadian bank stock to watch right now

Bank of Montreal (TSX:BMO) is the third-largest Canadian bank and the final bank stock I want to focus on in this piece. This bank stock has moved down marginally month over month. Its shares are down 5.5% so far in 2023.

In Q2 2023, BMO reported adjusted earnings per share (EPS) of $2.21 billion, or $2.93 in adjusted EPS, compared to adjusted net income of $2.18 billion, or $3.23, in the prior year. Like TD Bank, BMO saw its U.S. Personal and Commercial Banking segment achieved adjusted net income growth of 47% to $866 million. However, it suffered earnings setbacks in Canadian P&C Banking, Wealth Management, and Capital Markets.

This bank stock possesses a solid P/E ratio of 11 at the time of this writing. BMO last paid out a quarterly dividend of $1.47 per share, representing a strong 5% yield.

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

rising interest rates affect financial stocks
Bank Stocks

What Rising Interest Rates Really Mean for Financial Stocks

With interest rates rising, is it smart to invest in financial stocks?

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Bank Stocks Look Like a Steal: Here’s My Favourite for October 2023

TD Bank (TSX:TD) stock looks dirt cheap, as it continues to fluctuate in this rocky economic environment.

Read more »

bulb idea thinking
Bank Stocks

Striking Gold: Unearthing Canada’s Most Lucrative Stocks

Holding the big Canadian bank stocks is better than holding gold, because the former group produces growing dividend income.

Read more »

data analyze research
Bank Stocks

CIBC vs. Scotiabank: Which Is the Better Buy Today?

CIBC (TSX:CM) and Scotiabank (TSX:BNS) are bank stocks that offer similar value and income, but I’m favouring one in late…

Read more »

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

Financial technology concept.
Bank Stocks

Canadian Bank Stocks Are Crashing: Should You Buy the Dip?

As bank stocks like Royal Bank of Canada (TSX:RY) are crashing this year, should you go shopping for value plays?

Read more »

calculate and analyze stock
Bank Stocks

Canada’s Financial Powerhouses: Unveiling the Top Bank Stocks

EQB Inc (TSX:EQB) is Canada's top bank stock for growth. Who wins on valuation and profitability?

Read more »

Bank sign on traditional europe building facade
Bank Stocks

You Don’t Have to Pick a Winner in Bank Stocks

Why fret over which bank stock is best when you can easily buy them all?

Read more »