Investing in the banking sector is one of the most rewarding alternatives for long-term investors. The Canadian mega-cap lending landscape offers relatively strong returns in the long run, allowing investors to enjoy capital appreciation in a relatively steady fashion. Additionally, many of the top Canadian banks provide juicy dividend yields, which make these equities attractive for certain investor types.
Let’s dive into two of Canada’s largest banks, and do a compare and contrast, shall we?
Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (TSX: CM)Ā is the fifth-largest Canadian bank, with three key operational segments:Ā business and retail banking, capital markets, and wealth management. The bank has more than 11 million business and personal banking customers, predominantly located in Canada.Ā
Indeed, CIBC is largely viewed as the bank investors go to in order to gain exposure to the Canadian market. A top player in Canadian mortgages, CIBC certainly carries significant risk, given where interest rates have been. Surprisingly, however, CIBC’s stock has outperformed that of Scotiabank, which we’ll get to in a minute. Much of that has to do with the company’s soaring net income, which surged more than threefold on a year-over-year basis this past year.
CIBC also provides investors with a healthy dividend yield of 5.5%. So, for those bullish on the future of the Canadian economy, this is the play to make.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS), better known as Scotiabank, is another leading Canadian bank operating in similar business segments. The big difference between Scotiabank and CIBC, however, is Scotiabank’s outsized international focus. The company has a number of operations in various Latin American countries, providing investors with outsized growth potential over the long term.
It’s this main differentiating factor that continues to drive my attention toward Scotiabank relative to its peers. The lender’s dividend yield of 6.5% is among the best in the sector, and it makes for intriguing upside for investors thinking truly long term. Indeed, 6.5% is much better than most fixed income products and speaks to a solid return base investors can rely on while they await capital appreciation.
The company’s recent results were strong, with Scotiabank bringing in total revenue of $8.4 billion, just under 6% year-over-year growth. Additionally, net interest income grew 4.6% over the past year, suggesting this is a lender in strong financial standing right now.
Bottom Line
Overall, the Canadian Imperial Bank of Commerce and the Bank of Nova Scotia are great investment options for Canadian investors looking to invest in the banking sector. However, the Bank of Nova Scotia promises to offer betterĀ returns thanĀ the other due to a higher dividend yield and low volatility during market fluctuations.Ā It’s my view that Scotiabank ought to be the go-to pick for investors seeking diversification and better total returns over time.
