The Canadian bank stocks can’t catch a break, with shares of the broader basket continuing to retreat rapidly. Undoubtedly, the big bank stocks can lose you quite a bit of money in a hurry if you look to trade them in the face of a potential recession. And though the recent selloff has wiped out quite a bit of the gains enjoyed over the years, I still believe banks can be relied on for their steady (and growing) dividends.
Indeed, when the bank stocks fall, their dividend yields rise. Right now, their yields are on the high end of the historical range. Of course, so too are rates on risk-free assets. As rates retreat and the days of 5-6% on Guaranteed Investment Certificates (GICs) go away, we could find ourselves looking back on the bank sell-off as an opportunity that wasn’t so obvious in the heat of the moment.
Right now, the banks look like dead money. There’s really no way around it, with nothing but headwinds and little in the way of catalysts.
The good news is stocks don’t need a big catalyst to turn a corner. Sometimes, the selling is so overdone that a stock can bottom out and march higher. Indeed, it’s impossible to know if we’ve reached such a point quite yet. Regardless, don’t be afraid of the big bank stocks on this decline, as they’re still blue-chip dividend titans that can make it through difficult periods of time.
At this juncture, I view CIBC (TSX:CM) and TD Bank (TSX:TD) as buyable, even in the face of extreme negative momentum.
CIBC
CIBC is in the middle of a nearly two-year-long plunge, with the stock now down well over 40% from its peak. If you own it, odds are you’re in the red. But don’t rush for the exits just yet. The dividend yield is a whopping 7.22%.
So, even if you are off by double-digit percentage points, it may make sense to keep buying on the way down. Every step lower, the yield will look that much more impressive. And pending a 2008-style housing meltdown in Canada, I view the dividend as safe and sound. For now, there’s a lot of fear baked in, perhaps panic.
Just how much of the next recession is priced in?
It’s impossible to tell for sure. That said, I think a strong argument could be made that most, if not all of it, is at $48 and change.
Only time will tell, but I think fortune favours the bulls when it comes to this ailing bank, while it’s going for 9.9 times trailing price to earnings. Just brace for provisions and more negativity if you’re looking to buy here. And be ready to buy more at even lower prices as the falling knife continues its free fall.
TD Bank
TD Bank is another top bank stock to buy as it sinks to new multi-year lows. It’s hard to believe, but the stock is right back to where it was during the U.S. regional bank run scare earlier this year. Indeed, I view the recent slide as a terrific buying opportunity. TD Bank still has plenty of financial firepower to throw at an acquisition.
As valuations across the banking scene slump, I view TD’s balance sheet as a major source of strength. Whether it goes bargain hunting next year or decides to batten down the hatches for a rough year, I view shares as a steal at 10 times trailing price to earnings, with its 5% dividend yield.
