It’s the year of recovery for the broad batch of Canadian bank stocks, many of which are experiencing the best year-to-date returns in a number of years. Undoubtedly, owning the big bank stocks in the last four years or so has been quite a drag. It has been all volatility and not much to look forward to on the sustained gains front.
Of course, the swollen dividend yields were there for the taking. And for those who actually did some buying on weakness through 2022 to 2024, the above-average yields are now “locked in” and yours to keep. Though recent share price gains have taken away from current upfront dividend yields, I still think there’s value in staying the course with the big banks as they do more than their fair share to propel the broad Canadian stock market.
In this piece, we’ll cover two notable outperformers: Royal Bank of Canada (TSX: RY) and Bank of Montreal (TSX: BMO), which have more than doubled in value over the past five years, despite the bear market they encountered just over two years ago. At the time of this writing, shares of RY and BMO are up 108% and 113%, respectively. With new highs in the books and a growing number of Bay Street bulls raising their price targets, investors must ask if it’s time to return to the banking trade if they’ve departed at some point in the past five years.
Let’s check in on RY and BMO to see which, if either, is a better bank for your buck this month.
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Royal Bank of Canada
Royal Bank is Canada’s largest company with its $285 billion market cap. It really is a force that investors would be wise to stick with. Though it’s a premier name with a robust capital markets business and traits that set it apart from the pack (the Big Six), the valuation also tends to be slightly on the higher end. Currently, shares trade at 15.2 times trailing price-to-earnings (P/E) after gaining over 17% year to date and 22% in the past year.
While Royal Bank’s latest quarter was an impressive beat worth getting behind, it was noteworthy that management struck a rather cautious tone. CEO Dave McKay seems to be erring on the side of caution despite clocking in an incredible number. That could keep expectations in check as the top bank wanders into an environment that may hold a recession, stagflation, and more tariff pains. I’d argue Royal is prudent to be cautious, given all the unknowns facing the Canadian economy. In any case, I think Royal is well-equipped to rise to any such challenges the new year will bring.
Bank of Montreal
Although the days of 5% yields and single-digit price-to-earnings (P/E) multiples seem to be coming to an end, especially as interest rates continue to fall and the hunt for yield becomes a bit tougher, I believe that banks still have a strong risk-reward profile heading into 2026. Undoubtedly, provisions and other worries that have weighed on quarters are winding down and, with that, more earnings beats could be on the way.
Bank of Montreal has been an incredible performer this quarter, and while the melt-up seems too hot to justify buying at over $173 per share, I do think there’s more strength to come from the TSX-beating bank that’s up nearly 55% in a year. The 3.8% dividend yield isn’t as large as it once was, but with more dividend growth on the horizon, perhaps it’s time to begin nibbling now and into any weakness between now and year’s end.
Like Royal, BMO’s top boss is somewhat cautious as Canada’s economy runs into the unknown. I think this cautiousness bodes very well for the bank as it readies its sails for potentially stormier weather going forward.
