Canada’s banking sector has long been a top-of-mind option for income-focused, risk-averse investors. The Big Six banks, in particular, boast a high degree of resilience and have consistently maintained elevated capital buffers in the event of financial shocks. Because of this cautious nature, the stocks deliver stable returns and uninterrupted dividend income.
National Bank of Canada (TSX:NA), the sixth-largest lender, has strengthened its position with the acquisition of Canadian Western Bank early this year. The $5.6 billion mega deal demonstrates the $55.3 billion financial institution prioritizes value creation, a hallmark since its founding 166 years ago.
NA has surged +25.9% in the last three months, outpacing the TSX (+18.2%) and the financial services sector (+20.2%). At $141.02 per share, the year-to-date gain is +9.58%. With its positive momentum and strong showing amid a complex environment, should you take a position in this systematically important bank to start the second half of 2025?
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A significant step forward
Laurent Ferreira, president and CEO of National Bank of Canada, said acquiring CWB is a significant step forward in accelerating the bank’s domestic strategy. CWB is well-established in Western Canada. “We will pull strengths from our collective network and further extend the depth and breadth of our banking capabilities,” Ferreria said.
Furthermore, NA expects to realize significant cost and funding synergies of approximately $270 million annually through operational efficiencies, technology upgrades, and shared services. The Canadian bank also owns ABA Bank, the premier private financial institution in Cambodia.
Latest earnings performance
NA delivered strong second-quarter results, driven by solid organic growth in all business segments. In the first half of fiscal 2025 (six months ended April 30, 2025), net income increased 4% year over year to $1.89 billion. Also, in the second quarter (Q2) of fiscal 2025, provision for credit losses (PCL) rose 297.1% to $545 million compared to Q2 fiscal 2024.
The U.S. Specialty Finance and International segment reported an 11% and 4% increase in Q2 fiscal 2025 to $390 million and $169 million from a year ago. Like its larger industry peers, NA has a sufficient cushion to absorb potential losses and overcome a more adverse operating environment.
At the quarter’s end, the loans-to-deposits ratio of 95.9% reflects the bank’s strong funding and liquidity profile. According to Ferreira, and in the context of continued geopolitical and geoeconomic uncertainty, the strong capital position allows NA to support business growth. The common equity tier-one ratio is 13.4%.
Market analysts expect the Canadian big banks, including NA, to explore ways to effectively deploy excess capital and conduct share buybacks as long as the landscape remains conducive. However, the trade tensions caused by the lingering tariff threats pose a serious challenge to the banking sector.
Dependable dividend payer
National Bank of Canada is among the favoured dividend payers on the TSX. Besides 47 consecutive years of dividend payments, it has a 16-year dividend-growth streak. If you invest today, the dividend offer is a solid and safe 3.36% (42.8% payout ratio). The strong financial foundation and visible growth opportunities make it a stock for keeps.
