Canadian banks offer some of the most consistent results on the TSX today. That is, unless you’re in an economic downturn. Which is why you’ve likely seen shares continue to remain below 52-week highs for so long these days.
Yet there’s a benefit to investing in Big Six Banks, even in the face of economic uncertainty. These companies have been consistent in coming back no matter what. And I mean no matter what. The Canadian banks haven’t experienced a crisis since 1837! That’s through depressions, recessions, two world wars, and the recent pandemic.
With all that, you can be sure that these banks will continue to be consistent. And that includes through dividend payments. But, which is the best of the bests?
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What to consider
Canadian banks tend to have a goal when it comes to their dividend yields. If you have a bank that continues to rise in share price, that dividend yield is going to get smaller and smaller after all. That’s why the banks will tend to look to be somewhere around 4%.
If shares drop, that yield gets higher; if they climb, the reverse. But overall, they have that goal in mind. This can allow them to increase their dividend quite a lot to achieve these goals in the face of market growth.
But again, the reverse is also true. While the Big Six Banks have a long history of dividend increases, cuts have happened. So that’s why we want to look at the banks that have offered the most consistent dividend yield over the last few years.
Looking back
What we’ll consider here are the banks that have remained as close as possible to their dividend yield over the last five years. This will provide a view of the most consistent dividend yields during that time. If the yield is far higher than the average over the last five years, after all, that means the stock isn’t doing well historically at this point.
Today, the banks doing the best in terms of the most consistent dividend yield are Bank of Montreal (TSX:BMO) and Canadian Imperial Bank of Commerce (TSX:CM). They also offer some of the highest dividend yields as well among the Canadian banks.
BMO stock currently offers a dividend yield of 4.86%, which is slightly higher than its five-year average of 4.22%. Meanwhile, CIBC stock offers a dividend yield at 5.91%, with a five-year average of 5.24%. So now, let’s see whether these dividend yields can keep up.
Lower price, high value
Part of the reason these Canadian banks have a higher dividend yield than the rest is because the share price is indeed down. That being said, shares are now undervalued at these levels. BMO stock and CIBC stock both offer huge returns in the near future as the market recovers. So let’s look at why.
In the case of BMO stock, it has a 200-year history of growth behind it. And more growth is coming, with the stock’s investment in the Bank of the West providing a future opportunity in the United States. Furthermore, its focus on exchange-traded funds (ETF) has also been bearing fruit. So despite BMO being down from all-time highs, shares have recovered 20% in the last month or so!
Meanwhile, CIBC stock has fallen mainly from its investment in the Canadian markets and housing sector. It certainly will continue to struggle as we remain in a higher interest rate environment with fewer loans coming in. That being said, it’s due to recover, and remains undervalued. In fact, shares might be down since 52-week highs, but have soared back by 28% in the last month or so as well.
So sure, the Canadian banks still have work to do. But these two remain undervalued with consistent dividend yield you can bring in today. Therefore, consider them for your long-term portfolio for more future growth.
