Canadian bank stocks are down and out this year, as the recent wave of earnings delivers mixed-to-muted results. With bond yields and GIC rates at a high point, the dividend yields of Canada’s top banks don’t seem nearly as enticing as they did in a rock-bottom rate world.
So, does it still make sense to grab Canada’s bank stocks as they move into a slower economic environment?
I think so. Though Canadian banks look like dead money at this juncture, I still like the price of admission and the yields to be had in some of the more battered names in the basket.
In this piece, we’ll check out two Big Six bank stocks that offer swollen yields at a price which I think is too good to pass up at current levels.
Consider shares of Bank of Nova Scotia (TSX:BNS), or Scotiabank, and CIBC (TSX:CM), which boast dividend yields of 6.8% and 6.5%, respectively. Are the heightened yields worth the added risk? Let’s find out!
Scotiabank stock is one of the least loved of the Big Six banks, with shares off around 34% from their 2022 highs. Indeed, a recession could bring forth even more pain for Canada’s internationally diversified bank.
Despite the added risks from the emerging markets, I still believe Canadians should look to buy the dip if they’re looking for a fantastic bargain that can not only offer a juicy yield but also a good amount of geographic diversification.
Scotiabank’s exposure to Latin America makes it one of the best ways to play the higher-growth emerging markets. At 9.2 times trailing price-to-earnings, I find BNS stock a top pick for passive income investors who can handle the rocky moves.
Up next, we have shares of CIBC, which are down around 35% from their highs seen just last year. Indeed, it’s been a very painful time for the big banks, and CIBC hasn’t quite been able to steer clear of the volatile storm.
At writing, the stock trades at 10.4 times trailing price-to-earnings, slightly higher than Scotiabank stock. With quarterly earnings on tap for later this week, I’d not look to initiate too large a position right now. Instead, it may make sense to buy a half position now and half after the results are released.
Indeed, bank earnings season has not been too pretty this time around. As CIBC stock moves closer to lows not seen since 2020, I’d be ready to average down gradually over time.
Better buy: Scotiabank or CIBC stock?
I don’t think you can go wrong with either battered bank stock at this juncture. Between the two, I’d go with Scotiabank for the extra dividend yield and the slightly lower price-to-earnings (P/E) ratio.
Further, I’m a fan of the Latin American business and think it could help power above-average growth over the next decade. Further, CIBC seems a tad too exposed to the domestic mortgage market. As rates rise, housing could be rocked, and CIBC may be put in an even tougher spot. Given such risks, I’d want a greater discount!