If you’re looking for quality dividend stocks to buy with $1,000 or less, bank stocks would be logical names to start looking at. The present high interest rate environment is favourable to banks (at least on the profitability front), while being unfavourable to most other industries. Also, Canada’s big banks have far higher yields on average than the TSX does. In this article, I will explore three top bank stocks that are worth buying – all of which can be obtained for far less than $1,000.
TD Bank
The Toronto-Dominion Bank (TSX: TD) is a Canadian bank stock that costs about $81. It is a relatively cheap stock, trading at about 14 times GAAP earnings (GAAP means standard accounting rules), and 10 times adjusted earnings (‘adjusted’ means unconventional accounting standards). The 10 adjusted P/E ratio is low even by bank standards – banks in general are pretty cheap these days. Of course, companies enjoy complete discretion in how they calculate adjusted earnings, but TD’s adjustments have mainly had the effect of “smoothing out” earnings over the years, not totally transforming them. For example, an adjustment that TD made that impeded earnings a few years ago had a positive effect in the most recent quarter.
TD Bank stock is relatively cheap compared to its peer companies. There are several reasons for this. For one, the company’s GAAP earnings have been going down due to First Horizon deal termination issues. For another, the company is under investigation for facilitating money laundering in the United States. Finally, the company offered too high a price for First Horizon when it offered to buy it out, leading to concerns about capital allocation at TD. I actually sold a chunk of my TD shares when I heard about the money laundering investigation, but I bought many of them back when I heard that the proposed penalty was a mere $8 million fine. TD definitely experienced some difficulties in 2022 and 2023, but it appears to be bouncing back. Its stock has a 5% dividend yield, so there’s a lot of income potential here.
Citigroup
Citigroup (NYSE: C) is a dirt-cheap U.S. bank going through some temporary challenges. The company’s earnings declined 38% in the most recent fiscal year, while revenue grew at a sluggish 4% pace. A big part of the company’s poor performance in 2023 was a large increase in cost of credit, which nearly doubled. The company’s provisions for credit losses also increased 70%. These major expense categories grew at frightening paces, but today, Citigroup is being advised by Warren Buffett on how to get out of the conundrum it’s in. The company has a good shot at turning things around. In the meantime, it is dirt cheap, trading at:
- 9.9 times earnings.
- 1.5 times sales.
- 0.6 times book value.
C stock is being given away for less than the value of its assets, net of debt! Definitely an intriguing value play here.
Goldman Sachs
Goldman Sachs (NYSE: GS) is a bank whose common stock I am not all that interested in. The company’s earnings declined last year; growth is expected this year, but it remains to be seen whether it will occur. I am, however, interested in the company’s preferred shares. Goldman Sachs’ Series ‘A’ preferred shares have a 7.3% dividend yield, which has been rising, as it is a floating rate bond, and interest rates have increased. These preferred shares have more than double the yield of GS common stock, and also, can be called by Goldman Sachs at $25, which is 8.8% higher than today’s stock price. So, if Goldman calls back the shares, investors will earn a decent capital gain from it. On the whole, there are far worse high yield stocks you could buy today than Goldman Sachs Series A preferred shares.
