Canadian bank stocks have provided long-term investors with the kind of portfolio stability only the best mid-range growth, higher-yield dividend stocks can provide. These lenders have turned out to be a gold mine for investors seeking profitability. Indeed, unless our capital-intensive and consumer-driven economy changes in some fundamental way, banks are going to remain the lifeblood of economic activity and reap significant profits for doing what they do.
For those looking at top Canadian banks that may outperform their peers, here are three I think are poised for a pop, at least relative to the other players in this space.
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National Bank of Canada
National Bank of Canada (TSX: NA) is among the more niche banks in Canada, focused on a range of commercial lending and investment banking/capital markets products. In essence, this is a company that more explicitly reflects the idea that business investment in North America will continue to grow, though the company does have a growing presence internationally as well.
National Bank is certainly more exposed to the average Canadian business than other banks. But for investors who think the business environment is likely to continue to improve domestically, thanks in part to rate cuts from the Bank of Canada, this lender has clearly been a preferred choice. One look at the chart above tells a very bullish story of where investors see this stock headed from here.
With a dividend yield of 3.4% and a payout ratio of only 41%, this is a bank that could certainly raise its distributions in the future. The company’s management team has been eager to do so over the past decade, so I have no doubt this will be the case moving forward.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is one of the leading financials in the provision of banking services and other kinds of finance. Its main activities are personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets.
Scotiabank’s footprint is significant not only in Canada but in the U.S. and Latin America markets as well. This geographic diversification is something I think sets Scotiabank apart from its peers, providing greater growth opportunity and also the potential for less volatility overall, even though the markets this lender operates in can be more volatile over various periods.
Scotiabank does provide among the highest dividend yields of its peer group, with a current yield around 6% at the time of writing. Now, this does come along with a higher payout ratio (around 65%) and slower potential growth than others like National Bank. That said, I do think this is a more stable pick for long-term investors looking to buy a Canadian bank with a relative advantage over its peers in terms of yield and diversification right now.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX: TD) offers retail and corporate banking services, wealth management, and related financial solutions. The list of services the company offers includes accounts, cards, certificates of deposits, life and non-life insurance, mortgage and borrowings, international banking, merchant solutions, investment, cash management, and wealth advisory services.
TD is certainly among the most notable Canadian finance brands, having built a retail banking network that’s enormous. However, this retail presence is even larger in the U.S. market, meaning investors in TD get outsized exposure to the higher growth and the greater long-term stability of the U.S. market. That’s something I particularly like with this name.
The lender’s personal and commercial banking operations both saw record activity during this year’s second quarter, and I’d expect to see similar highs made in the coming years. Indeed, for those looking to bet on a strong North American economy (relative to the world) in the coming years, this is a top way to play this sentiment right now, at least in my view.
