Banks are the engine of Canada’s economy. While many Canadians think that our country is an “oil economy,” the fact is that the two biggest Canadian companies by market cap are both banks.
Why are Canadian banks so big?
Partially, it’s because they’re so international. Most Canadian banks have operations in the U.S. and abroad, giving them the ability to grow even after having saturated the Canadian market long ago. Additionally, Canada’s banking sector is highly regulated, which helps to promote healthy risk management at banks, which in turn helps them avoid failure. In this article, I’ll explore three top bank stocks that are worth looking into today.
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#1: TD Bank
Toronto-Dominion Bank (TSX:TD) is Canada’s number one bank by total assets. It is a diversified financial services company involved in retail banking, investment banking, insurance, and brokerage services.
TD Bank’s main claim to fame is being the “most American of Canadian banks.” 40% of its profit comes from its vast and growing U.S. retail business. TD U.S. retail is the ninth-largest bank in that country. TD recently added to its U.S. presence by buying out the investment bank Cowen, which is now known as TD Cowen Securities.
TD Bank’s most recent quarter was mixed. The bank beat on revenue and on adjusted earnings but missed on GAAP (generally accepted accounting principles) earnings. Revenue increased by 13.6%, but earnings declined by 8%, mainly due to an increase in loan-loss provisions. Still, on the whole, TD Bank is a high-yield stock you can count on.
#2: Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is Canada’s number one bank by market cap. It does more revenue and profit than any other Canadian bank. It is a pretty thoroughly diversified financial holding company. It has sizable investment banking operations in the U.S. and wealth management services as far afield as the Caribbean! The company’s most recent quarter was similar to TD Bank’s, which is to say that revenue increased, but earnings went down due to increased reserves for non-performing loans.
Overall, it was a mixed showing, but with a mere 53% payout ratio, RY stock should at least keep paying its dividend.
#3: EQB Inc
EQB (TSX:EQB) is Canada’s fastest-growing bank. It’s a purely online bank that offers very competitive rates on Guaranteed Investment Certificates. Over the last five years, its stock has risen 114%, which is a faster rate of capital appreciation than any of the Big Six banks achieved in the same period.
Why is EQB stock rising so much?
The underlying company is growing just as fast. In its most recent quarter, EQB delivered the following earnings metrics:
- $284.6 million in revenue, a 72% increase
- $251.7 million in net interest income, a 50% increase
- $115 million in net income, an 85% increase
- $32 billion in deposits, a 35% increase
It was an extremely strong showing. The larger Canadian banks will typically grow their revenue by 5% to 10% in a quarter — if they’re lucky. EQB is beating that by a wide margin, making it one of Canada’s “growthiest” banks.
Past results don’t tell you future results, but there are reasons to think that EQB will continue performing well in the future. It’s relatively small, giving it room to grow, and its online-only model helps keep costs down. On the whole, this is one bank stock worth watching.
