The Canadian banks are wonderful dividend investments to hold over the course of years. Although the gains haven’t really been there of late, I think patient investors content with collecting dividends shouldn’t hold off on the swollen yields. Buying bank stocks in the face of a recession can be tricky, even risky. When provision for credit losses (PCLs) begin to mount and growth sags, the bank stocks can lose a considerable amount of ground in a hurry.
The latest round of bank earnings has not been ideal in the slightest. Still, investors must remember that the banks tend to find their way. The Canadian banks, in particular, are very well capitalized. They’re tested for tough times, stressful situations, and unforeseen events. In that regard, I believe the Canadian banks are much less horrifying to buy on recession-induced dips.
That doesn’t mean bank stocks will be spared from downside in the face of tough economic climates. To ride out such turbulent times, dollar-cost averaging can really pay off. So, without further ado, let’s look at two intriguing bank stocks that may be worth watching after recent pressures.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is an incredibly well-run bank. The $175 billion company is about as stable as they come, and ought to be viewed as a preferred choice for dividend-hungry bank investors. Despite Royal Bank’s dominance and stellar management through turbulent conditions, a lot of the premium traits already factored into the share price.
It’s a premium share price that may limit upside for quite some time. Even a 14.5% drop from its highs, RY stock looks pricier than its peers. The stock trades at 12.45 times trailing price to earnings (P/E), with a 4.31% dividend yield.
Though the bank hiked its dividend, the recent quarter (Q2) was nothing to write home about. Loan-loss provisions hit the big bank, just like its less-premium peers. At this juncture, I think there may be more value to be had with one of Royal’s lower-cost peers.
Scotiabank (TSX:BNS) stock is down around 28% from its recent 2021 high. As recession moves across the global economy, the international assets of the bank are bound to weigh down the stock. Once the inevitable recovery happens, Scotia’s international exposure could turn back in its favour again.
As you may know, it’s good to diversify exposure beyond Canada or even North America. With Scotia, you’ll get stellar managers know understand emerging markets (like Latin America) very well. Such markets could boon growth when times normalize and help Scotia pick up ground versus its rivals.
At these depths, I view BNS stock as an absolute bargain for investors with at least a three-year horizon. The 6.39% dividend yield is just too rich to pass up, even in the face of so much uncertainty.