Are Canadian Banks Going to Be the Next Big Theme?

Canadian banks could be the next big value play with cheap valuations, steady dividends, and upside if interest rates and credit conditions improve.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published October 9, 2025 8:00 pm EDT

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Key Points

Big Canadian banks offer attractive yields and cheaper valuations after a tough cycle, making them potential value plays.
Falling interest rates could boost net interest income and loan growth, lifting bank profits.
RY, TD, and CM each show dividend income and recovery signs, but differ in risk and upside for investors.

There are a lot of trending topics out there right now when it comes to investing. Whether it’s the surging use of artificial intelligence (AI), gold prices, or clean energy, all of these sources have been sources of growth for many investors.

But what’s next?

Canadian banks could arguably be the next big thing when it comes to investing, and there are many reasons for it. Big Six banks can be attractive for valuations after a tough cycle, offering dividends between 3% and 6% at writing. And with interest rates stabilizing, borrowing costs can fall. This creates upside for net interest income, with wealth and capital markets surging in a rebound. With that in mind, let’s look at the top bank stocks that could benefit.

Piggy bank and Canadian coins — Source: Getty Images

RY

Obviously, Royal Bank of Canada (TSX: RY) could be a huge beneficiary from a resurgence in bank stock activity. Canada’s largest bank (and largest stock) recently delivered record earnings, showing strong year-over-year growth across its business segments. Furthermore, even in a more challenging macro environment, the company’s diversified model gave it multiple levers to pull. And all of them soared.

What’s more, there are macro trends that could provide a tailwind for the bank stock. If interest rates ease, margin pressure eases, and loan growth can accelerate. The bank stock’s scale allows it to ride those tailwinds better than smaller banks.

Add in a solid dividend yield of around 3% at writing, supported by a stable payout, and this is one dividend stock looking to rise higher. At least management thinks so, recently buying back 5.4 million shares for $955 million during the third quarter.

TD

Next up, we have another of the biggest banks out there, Toronto-Dominion Bank (TSX: TD). Granted, the bank stock is coming off some difficulty in the last few years after wading its way through an anti-money laundering scandal. But now, it seems as though TD stock is on the other side.

The third quarter offered a rebound from those prior troubles, including large provisions and regulatory headwinds. The drop in credit loss provisions and revenue growth both point to normalized operating conditions. This gives it more room for earnings leverage as the macro environment continues to improve.

This will mean continuing to focus on its Canadian and United States retail banking, while also refocusing on growth strategies and efficiencies. This might mean higher fees, cost control, and operational efficiency. Meanwhile, it offers a strong value play trading at 9.7 times earnings, and a 3.72% dividend yield.

CM

Finally, we have Canadian Imperial Bank of Commerce (TSX: CM), which might not be the biggest out there, or even the most diverse. However, its customers are loyal, and this has led to slow and steady growth for the bank stock.

Most recently, this came through earnings, with solid year-over-year improvements in profit, earnings per share and revenue. All these point to a recovery from an earlier drag in credit costs and margin pressure. If banks rally, this could be one name that sees momentum.

The benefit here definitely belongs to the share price and dividend, with shares surging after a stock split. Now shares trade at 13.7 times earnings, offering a 3.4% dividend yield. One that’s well supported by a 46% payout ratio.

Bottom line

Canadian bank stocks might not be a flashy growth story, but through 2025 and 2026, these could represent a massive value play, along with income! Especially if the economy avoids a deep downturn. Steady dividends and cheap valuations, along with macro trends, all favour these investments. So, now could certainly be an excellent time to add these to your watchlist.