Canada’s big banks are some of the best long-term options for investors. And as it stands, right now there’s a huge opportunity to come from buying Canadian bank stocks.
Here’s a look at some of the Canadian bank stocks I’m buying (at a decent discount) and why.
First, let’s understand Canadian bank stocks
There are more than a few reasons why the big banks are stellar investment options. Part of that comes down to the very tasty (and stable) dividends that they offer. But one of the main reasons that is often overlooked is how and where the banks operate.
In Canada, the big banks enjoy an overwhelming majority of the market — so much so that the market share of smaller banks is often seen as nothing more than a rounding error.
By extension, it means that the banks enjoy a massive defensive moat that provides a stable and recurring revenue stream. It also means that the big banks need to turn to international markets outside of Canada to fuel growth.
And that’s where a pair of Canadian bank stocks come into play as holding massive long-term appeal.
Bank stock #1: Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD) is the second-largest of Canada’s big banks. Apart from its massive presence in Canada, TD also enjoys an even larger network in the U.S. with over 1,100 branches stretching from Maine to Florida.
In the most recent quarter, that U.S. segment posted a net income of $580 million, which was a decrease of 59% over the prior year.
And it’s that decrease, coupled with a 12% drop in the stock price this year that makes TD one of the Canadian bank stocks I’m buying right now.
One of the primary reasons why TD’s U.S. results were weak was due to the bank setting aside massive amounts to cover fees stemming from ongoing investigations. Those investigations are being undertaken by U.S. regulators and pertain to TD’s inability to report on suspicious transactions.
Some pundits see the total amount of those fines ballooning into the billions, which has provided the catalyst for some investors to look elsewhere.
What prospective investors need to consider is that TD is a long-term investment. The bank will recover from these current lows. And while the bank stock trades at a hefty discount, it’s quarterly dividend has swelled to a yield of 5.43%.
In short, long-term investors waiting out for TD’s recovery can buy the stock on the dip and reinvest those dividends while waiting for that eventual recovery.
Bank stock #2: Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is another Canadian bank stock that I’m buying on the dip. In the case of Scotiabank, the stock price has dropped nearly 10% over the trailing two-year period.
Like TD, Scotiabank has turned to international markets to fuel growth. One key difference is that Scotiabank has turned further south than the U.S. market. Specifically, the bank has targeted the Latin American markets of Mexico, Chile, Peru, and Columbia.
The four nations are part of a trade bloc known as the Pacific Alliance, which is focused on increasing trade between its members. Scotiabank’s presence in all four nations has allowed it to post solid gains over the years.
Those markets can provide higher growth, but they also come at a higher risk, particularly in Chile, Peru, and Columbia where there is more instability. As a result, Scotiabank is now prioritizing growth efforts in Mexico as well as the U.S.
That volatility and shift in focus presents a unique opportunity for investors to pick up Scotiabank at a hefty discount. It also means that the bank’s dividend has swelled to an impressive, if not lucrative, 6.79%.
In other words, investors looking for a long-term stock that can provide a juicy income today and long-term growth prospects will be hard-pressed to find a better option over Scotiabank.
