The Bank of Canada (BoC) surprised many analysts by cutting its key interest rate by 25 basis points for a second consecutive time in July 2024. The Canadian central bank cited continuously easing inflationary pressures to justify its rate cut decisions, also keeping the possibility of more rate cuts in the near term open. The move is likely to stimulate borrowing and spending as well as support the housing market and the oil sector indirectly.
But more importantly, these rate cuts are likely to have a positive impact on the profitability and attractiveness of Canadian bank stocks, which faced higher provisions for credit losses and slower loan growth in the last couple of years.
In this article, I’ll highlight two of the best bank stocks in Canada you can buy right now to expect strong returns on your investments in the long run.
Canadian Imperial Bank stock
Canadian Imperial Bank of Commerce (TSX:CM), or CIBC, could be one of the most attractive bank stocks that you can buy amid reducing interest rates. With a market cap of $65.1 billion, it’s currently the fourth-largest Canadian bank, as its stock trades at $69.03 per share after rallying by nearly 22% in the last year. CIBC distributes its dividend payouts every quarter and currently has an attractive 5.2% annualized dividend yield.
CIBC’s client-centric approach and continued strategic investments make it well-positioned to capitalize on the improving economic conditions. In the second quarter of its fiscal year 2024 (ended in April), the bank’s revenue inched up by 8.1% YoY (year over year) to $6.2 billion with the help of higher revenue from fee-based services of the Canadian commercial banking segment and stronger global markets revenue.
Although its quarterly provision for credit losses climbed by $76 million from a year ago, improved profitability from its Canadian personal banking and the U.S. commercial banking segments drove CIBC’s adjusted earnings up by 2.9% YoY to $1.75 per share, exceeding Street analysts’ expectation of $1.65 per share.
Besides its robust capital position, Canadian Imperial Bank’s ongoing risk management initiatives could help it capitalize on future opportunities as interest rates continue to decline in the coming years, which should drive its share prices higher.
TD Bank stock
Toronto-Dominion Bank (TSX:TD) or TD Bank is another top Canadian bank stock to consider because of the potential benefits of the BoC’s recent rate cuts. TD Bank, known for its strong presence in both Canada and the United States, is the second-largest bank in Canada by market capitalization, which currently stands at approximately $137.4 billion. After rising by 4.1% in the last month, its stock currently trades at $78.65 per share. Just like CIBC, TD Bank also offers a 5.2% annualized dividend yield at the current market price.
In the April quarter, TD Bank’s total revenue jumped by 10.2% YoY to $13.8 billion, with solid revenue growth in its wealth management, insurance, and wholesale banking segments. Despite higher provisions for credit losses from its U.S. retail banking segment, the bank’s adjusted quarterly earnings rose 5.2% from a year ago to $2.04 per share, reflecting its ability to continue generating robust profits across diversified lines of business.
As reduced interest rates are expected to further stimulate economic activities by making borrowing more affordable, TD Bank could see an increase in both its lending and asset management businesses, making it an attractive bank stock today.
