The Canadian bank stocks have been down and out for quite some time now. However, some of the top performers within the Big Five banking cohort have shown some fairly robust momentum in recent months. Indeed, it hasn’t been a tide that’s lifted all boats, especially when it comes to some of the big banks that have run face-first into provisions and other idiosyncratic issues.
Though the Big Five banks are wonderful long-term bets for their dividends, dividend growth, and longer-term rebound potential, I think that Canada’s regional banks also deserve some love, especially at today’s valuations.
In this piece, we’ll check in with two regionals for deep-value investors who are open to looking beyond Canada’s Big Five giants.
National Bank of Canada
National Bank of Canada (TSX: NA) is Canada’s sixth-largest bank, and given its many years of impressive performance, a strong case could be made that Canada’s biggest and brightest banks should be referred to as the Big Six rather than the Big Five. Indeed, many folks out there already include National Bank alongside some of its much larger rivals. And though National Bank may be a tad more regional than the peer group, with a huge presence in Quebec, the bank has been taking steps to expand of late.
Perhaps most surprisingly, NA stock is close to all-time highs, while some of its five bigger brothers remain in a rut. Undoubtedly, who would have thought that the smaller bank would have been one of the leaders?
I think management deserves more credit for helping the number-six bank catch up. At 12.15 times trailing price to earnings (P/E), with a 3.66% dividend yield, shares are still cheap. Looking ahead, I believe National Bank will keep leading the pack as it moves past mild headwinds en route to the next banking bull run. Despite its slight regional tilt (especially in Quebec and Ontario), National Bank seems to be getting more like a national bank (hence the name!) every year.
Laurentian Bank
If you seek deep value, Laurentian Bank (TSX: LB) is worth careful consideration. At 7.6 times trailing P/E, with a 6.9% dividend yield, shares definitely make up for the nasty stock chart and relative lack of fundamentals compared to its more robust national rivals. Recently, the bank slashed jobs and announced it’s getting rid of its equity research division.
That’s a huge move and one that the market hasn’t taken well. Now down 38% from 52-week highs, I view LB stock as one of those risky deep-value bets that could pay off if management can restructure enough to turn the tide. As it continues with its asset sale and cost-cutting mode, perhaps some relief could be in sight for the hard-hit regional bank.
Also, with a $1.1 billion market cap and a 1.28 beta (which implies more correlation to the markets), expect greater volatility in the name. It’s a roller-coaster ride, but one that may be nearing the low point.
Bottom line
Though LB stock is way cheaper, I have to side with NA stock at current levels. It’s just the better-run bank and though the yield is way lower, I view more dividend growth in the cards over the next decade and beyond.
