It’s hard to overlook the recent boom in the big Canadian banking stocks. And while the red-hot run won’t last forever, I think that the cohort is still worth checking out if you’re a fan of the dividends and the still somewhat price of admission.
Of course, if you consider yourself more of a traditional value investor, the latest melt-up in the bank stocks may have you glued to the sidelines, waiting for some sort of pullback that may hit once the next big market-wide correction hits. Indeed, with Jamie Dimon recently warning of correction risk over the next two years, it may seem wise to just start loading up on the cash, the GICs (Guaranteed Investment Certificates), and even bonds.
Of course, 3% seems to be the new 5% after the latest wave of interest rate cuts by the Bank of Canada. And while I have nothing against buying risk-free securities (most notably GICs and other cash equivalents) as a part of one’s portfolio, I’d encourage investors to stop buying into the fear-driven headlines you’re bound to run into with the broad markets dancing at fresh new highs. Indeed, could there be a correction within two years, as Dimon noted? Of course, there can be! Corrections, on average, tend to happen every year or two!
In my view, Dimon’s latest comments are really nothing to worry about if you’re in it for the long haul!
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Don’t let the fear of a correction sideline you
Through your investment career, you can expect to invest through at least a dozen corrections. If you’re getting started early, perhaps two or even three dozen corrections will not be out of the ordinary. And, in the grander scheme of things, these corrections are really less remarkable when looking back.
As such, investors shouldn’t panic-sell in response to bold predictions made by smart people on Wall Street. Instead, the game plan remains the same. Buy stocks on your radar that are going for a reasonable discount to intrinsic value.
At this juncture, the banks still stand out as great bets, especially if you’re looking to grow dividends over the next couple of years. They’ll still deliver, perhaps at a quicker rate, as loan growth looks higher while the big banks start getting some return from their AI investments.
Royal Bank of Canada: A nice AI lead in the big banks!
Speaking of AI investments, I think Royal Bank of Canada (TSX: RY) stands out as a hidden beneficiary, as the AI boom continues playing out while driving stocks of companies beyond just the tech titans higher. Indeed, if there’s a field that AI could reinvent for the better, it’s banking. At this juncture, Royal Bank ranked number one in Canada and number three worldwide for financial institutions in the 2025 Evident AI Index. That’s a big deal. And I think Royal Bank will invest with that top global spot in mind!
Royal Bank is probably going to stay at the top of this ranking for some time, especially as the firm places more strategic bets on integrating the technology across its business. Arguably, Royal Bank is widening the gap with its five rivals in the Big Six.
With a respectable AI lead, I view the premium multiple (15.5 times trailing price-to-earnings) as worth it. Sure, the 3.0% yield has contracted, but I think big dividend growth through the years makes the below-average yield less of a deterrent for dividend-growth investors.
