The Canadian banks look like pretty attractive value options, with dividend yields still just a tad on the swollen side and valuations that are more than appealing for the value-conscious crowd out there. Indeed, not all Canadian bank stocks are in the bargain bin these days, with some of the top performers actually on their way to making new highs despite the recent slate of economic rumbles.
With interest rates heading south (the Bank of Canada is expected to keep slashing rates from here) and an economic reality that may not be as bad as some of the bears on Bay Street expected a year ago, the case for buying bank stocks on the dip makes a lot of sense.
As the discrepancy in performance among the Big Six members (Canada’s top six banks by market cap) widens a bit further going into year’s end, dip-buyers hungry for a bit of extra yield may just have a chance to land a bargain before the so-called “tide that lifts all boats” has a chance to reward some of the laggards in the Canadian banking scene.
In this piece, we’ll check in on two Canadian bank stocks that I think offer the best value for investors who have a time horizon of at least three years. As always, such bank stocks are best held for decades at a time, given their swollen dividends and solid track records of growth through almost any sort of market conditions.
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TD Bank
TD Bank (TSX: TD) took such a massive hit on the chin last week, as shares crumbled and news broke about just how much its money-laundering fiasco would cost it. Indeed, the bill is quite hefty at US$3 billion. With the stock down close to 10% in just two sessions, I do think the name is getting severely oversold.
Though TD Bank’s U.S. growth narrative may have also taken a bit of a hit, I do think that the stock is a deep-value bargain right here at less than $79 per share. The dividend yield sits at 5.2%, which is pretty good for one of the bluest blue-chip stocks in the entire financial scene. As a new CEO leaves his mark, I do think that the bank could be on the cusp of a huge comeback.
At the end of the day, analysts and investors have essentially lowered their expectations to the floor amid the money-laundering debacle. Now that we’ve got clarity as to the consequences and a successor in place to steer the bank back on track, I’d argue there’s never been a better time to punch your ticket.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is another bargain bank stock that boasts a yield well north of 5%. Heck, on a pullback, the yield could breach the 6% mark again. Either way, things have been looking up for the internationally diversified bank in recent months.
With the stock up 14% year to date, value investors would be wise to pick up shares before they have a chance to add to their recent gains. Indeed, the stock remains quite cheap at 12.6 times trailing price-to-earnings (P/E). My takeaway? BNS stock seems like a steal of a deal right now! Perhaps nibble on weakness to average down your cost basis and “average up” your dividend yield!
Between TD and BNS, I’d have to go with the latter. The pessimism is way overblown, and as shares flirt with 52-week lows again, the name may prove unsustainably oversold as the new CEO looks to act as a catalyst in 2025.
