The rate-cutting cycle of the Bank of Canada (BOC) in 2024, including super-sized cuts (0.50%) in October and December, was a tailwind for the banking sector. According to BOC governor Tiff Macklem, the cuts will be working their way through the economy. However, he added that the central bank will take a more gradual approach to any further cuts this year.
On the investment front, big bank stocks recovered lost ground. National Bank of Canada (TSX:NA) and Bank of Montreal (TSX:BMO) delivered double-digit returns to investors. Either one is the best stock to buy right now. Both are poised to make big moves this year.
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Coming together
National Bank made a takeover bid to Canadian Western Bank last June. The Minister of Finance approved the deal last month, and the transaction should be complete on February 3, 2025. NA and CWB believe that coming together brings tremendous value to shareholders and gives customers a broader range of services.
NA total’s return in 2024 was +34.6%, boosted by the announced merger and a new chapter for Canada’s sixth-largest lender. As of January 10, 2025, NA trades at $132.49 per share and pays a 3.13% dividend. Based on market analysts’ hold recommendation, the potential upside in 12 months is between $140 and $154 per share.
The $45 billion bank expects to accelerate growth across all its business lines. “This transaction is about growth and brings together two great banks with a complementary footprint in personal and commercial banking and supports our objectives in Western Canada and across the country,” said Laurent Ferreira, president and chief executive officer (CEO) of National Bank.
By combining the resources of both banks, National Bank will have a larger network and can increase its banking and wealth management activities. CWB retail clients and small business owners will have access to NA’s digital platform and more product offerings.
Ferreira added, “Looking ahead to 2025 in what will remain a complex environment, we will continue to leverage our diversified business model and disciplined approach to credit, capital and costs as we pursue our growth path.” In fiscal 2024 (12 months ending October 31, 2024), NA’s net income rose 16% year over year to $3.82 billion.
Strong foundation
BMO is a no-brainer buy, especially for income-focused investors. The country’s oldest and third-largest financial institution is TSX’s dividend pioneer. This $102.66 billion bank started paying dividends in 1829, and its track record is now 195 years.
At $140.65 per share, you can partake in the 4.62% dividend. BMO rewarded investors with a +11.7% return in 2024. Market analysts’ 12-month high price target is $161 (+14.5%). BMO acquired Bank of the West in the U.S. in 2023 and completed the integration in 2024.
In fiscal 2024, net income climbed 65.1% to $7.33 billion versus fiscal 2023, notwithstanding the elevated provisions for credit losses. Darryl White, CEO of BMO Financial Group, said, “We’re entering 2025 with a strong foundation and significant balance sheet capacity for growth.”
All-weather stocks
Canadian big bank stocks are all-weather investments, evidenced by their resiliency regardless of economic conditions. However, NA and BMO will stand out in 2025. Their strategic acquisitions should drive profitable growth.
