After ending the previous month with a 3.6% decline, the TSX Composite benchmark has rebounded by 2.4% so far in January 2025 to currently trade at 25,312. Even as geopolitical and trade uncertainties are keeping investors on their toes, investors expect more interest rate cuts in the near term to help consumer spending trends and the economic environment improve. In addition, lower interest rates should encourage borrowing, which will provide a boost to sectors like banking.
This makes Canadian bank stocks an attractive option for long-term investors seeking stability and dividend income. While most large-cap bank stocks have seen strong gains over the last few months, there’s no guarantee that the top-performing stocks from 2024 will continue to perform well in 2025 and beyond.
In this article, I’ll highlight two value Canadian bank stocks you can buy on the dip in January. Interestingly, both of these stocks underperformed the broader market in 2024, but, in my view, they have the potential to stage a sharp recovery.
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TD stock
Unlike most other large banks, shares of Toronto-Dominion Bank (TSX: TD) fell 10.6% in 2024. Currently trading at $81.86 per share with a 7% month-to-date gain, it has a market cap of $143.3 billion. Last year’s weakness in TD stock has also made its annualized dividend yield more attractive, which currently stands at 5.1%.
The main reason for TD’s underperformance last year was its U.S. AML (anti-money-laundering) issues. The bank faced big challenges due to compliance shortcomings in its U.S. operations, which led to regulatory penalties and remediation costs. Despite this, TD’s core business segments remained robust. For example, its Canadian personal and commercial banking segment reported record revenue growth in its fiscal 2024 (ended in October), supported by increased loan and deposit volumes and improved margins.
Moreover, TD is actively addressing its U.S. AML concerns, with Raymond Chun set to take over as Group President and CEO on February 1, 2025. Under his leadership, the bank is expected to accelerate its strategic review, focusing on operational efficiency. At the same time, initiatives like enhancing digital platforms and expanding credit card partnerships position TD well for long-term growth. Combined with its strong dividend yield and renewed leadership, TD stock looks like a great value stock to buy now.
BMO stock
Although Bank of Montreal (TSX: BMO) stock rose about 6% last year, it still underperformed the broader market by a wide margin as the TSX Composite ended the year with an 18% gain. Currently trading at $144.03 per share with a market cap of $105.1 billion, BMO stock offers an attractive annualized dividend yield of 4.4%.
In terms of financial growth, BMO delivered a solid $32.8 billion in revenue for its fiscal year ended in October 2024, a 12% increase year over year. While its adjusted net income of $7.4 billion fell slightly compared to fiscal year 2023, the bank’s pre-tax earnings growth and increased efficiency highlight its resilience.
As interest rates decline further and economic conditions improve, BMO could benefit from higher demand for its services. Also, BMO’s strategic focus on digital transformation, enhanced client solutions, and market expansion makes it a value bank stock to buy now and hold for the long term.
