Canada’s banking sector is usually considered more robust than most other large countries due possibly to the stringent regulatory environment, the dominance of a handful of large banks, and their largely conservative lending practices. These are also possible reasons Canada has seen an extremely low rate of bank failures in the past. Considering that, you may want to hold some quality Canadian bank stocks in your stock portfolio to expect steady and stable returns on your investments over the long term. In addition, most large banks also reward their investors with handsome dividends, which can act as a reliable source of passive income for you.
In this article, I’ll highlight two top dividend-paying Canadian bank stocks you can buy today and hold as long as you want.
Scotiabank stock
Bank of Nova Scotia (TSX:BNS) is one of Canada’s popular “Big Five banks.” With a market cap of $75.8 billion, it’s currently the third-largest Canadian bank. This top Canadian bank stock currently trades at $55.97 per share after losing about 16% of its value in 2023 so far due partly to the ongoing broader market selloff. At this market price, BNS stock offers a very impressive 7.6% annualized dividend yield and distributes its dividend payouts every quarter.
Although in the first three quarters (ended in July) of its fiscal year 2023, Scotiabank’s revenue growth trend has remained positive due mainly to its well-diversified revenue streams, its adjusted earnings have witnessed double-digit year-over-year declines. This could also be one of the primary reasons why its share prices have fallen sharply in the last year.
Besides its large core banking operations in several international markets, Scotiabank’s strong presence in the global wealth management sector is also one of its main strengths. While it’s true that recent market turbulence and growing provisions for credit losses have affected its financial growth over the last year, its continued focus on disciplined capital allocation and diversified business model gives it the ability to navigate the ongoing temporary period of economic uncertainty smoothly. Given that, I expect this top Canadian bank stock to stage a handsome recovery as soon as the economic outlook gradually improves in the future.
National Bank of Canada stock
National Bank of Canada (TSX:NA) is my second top Canadian bank stock pick you can consider in 2023. It currently has a market cap of $29 billion as NA stock trades at $85.24 per share. Although the stock has seen 6.6% value erosion in 2023 so far, it’s continuing to outperform most larger Canadian banks this year. Just like Scotiabank, National Bank also distributes its dividend payouts every quarter and has a decent 4.8% annualized dividend yield at the current market price.
Even as higher provisions for credit losses have affected the banking sector in the U.S. and Canada lately due to a tough lending environment, National Bank of Canada’s strengthening net interest margin and strong growth in commercial loans have limited their negative impact on its financial growth trends.
The underlying strength of the National Bank’s business model could also be understood by the fact that its adjusted earnings surged by more than 76% in five years between its fiscal year 2017 and 2022 (ended in October 2022). Overall, its disciplined cost management, focus on credit positioning, and strong liquidity levels make NA a very reliable top Canadian bank stock to hold over the long term.
