Canadian bank stocks seem to be more than worth banking on in 2025 as headwinds begin to fade and earnings start to be something to look forward to again. Indeed, provisions have been quite rough for some of the banks. And while the credit pressures could continue to weigh down results partially, I think that expectations are low enough such that we can start being just a tad more constructive on the group this year, especially the ones with rock-bottom valuation multiples and dividend yields that are well above their longer-term averages.
Of the Big Six Canadian banks, I like Bank of Montreal (TSX:BMO) and Bank of Nova Scotia (TSX:BNS) at current levels. Not only do their shares look cheap this January, but there’s some recent momentum to get behind, as well as potential catalysts that could help them rally after a couple of stumbles since the 2020s began. Indeed, the trajectory for the latter half of the decade could have the potential to be more promising.
Which bank stock is the better buy for long-term Canadian income investors at these levels? Let’s check in with the names.
Bank of Montreal
Bank of Montreal stock currently trades at $142 and change per share after stumbling a bit (3% or so) off its 52-week highs.
Indeed, the recent rally in the name propelled shares just shy of their 2022 all-time highs, a level that I think is breakable in this new year, thanks to a wide range of potential industry catalysts (the ETF business looks well-equipped to capitalize on Canada’s demand for passive investment products). The stock trades at a modest 14.9 times trailing price to earnings (P/E), which is pretty cheap for such a quality banking titan that’s more than capable of topping earnings in the coming quarters.
With a nice 4.62% dividend yield, income investors may wish to keep a close watch on the name. My prediction is that the yield will gravitate closer to 4% as shares continue to appreciate from here. Of course, be ready for the odd bump in the road like the one experienced in recent weeks. Such dips and declines, I believe, are sure to be great opportunities to add to a longer-term position.
Bank of Nova Scotia
Bank of Nova Scotia is another bank that’s starting to give up the ground gained in the back half of 2024. Indeed, Canada’s best international bank still boasts a huge yield of 5.31% at the time of writing.
It’s a very safe payout and one that’s sure to keep on growing for years to come despite any headwinds faced along the way. With a dirt-cheap 12.6 times trailing P/E ratio, BNS definitely stands out as one of the lower costs to play the Canadian banking scene. As the bank looks to pursue expansion efforts (think a move into the U.S. market), I think BNS stock could have a pathway to retest the $83 level not seen since the start of 2024.
With modest expectations for its coming quarters, perhaps BNS stock is a bargain to stash near the top of your 2025 buy list! It’s a value and yield play together. And soon, it may be a momentum play again! Given the lower P/E, I like BNS better than BMO ever so slightly!
