As far as top Canadian stocks are concerned, few investors would disagree that Royal Bank of Canada (TSX: RY) isn’t a world-class name worth holding for the long term. I agree on that point.
However, I also think it’s important to recognize that the Canadian banking sector is one that’s filled with top-tier dividend stocks investors can buy and hold for the long term. Each company has their own unique catalysts and balance sheets that make dissecting this sector an intriguing exercise.
Let’s do just that, and point out another top Canadian bank stock which may be a better pick from a dividend perspective right now.
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Scotiabank
Among the five largest Canadian banks in the market, Bank of Nova Scotia (TSX: BNS) has the highest yield at 4.6%.
I’ve long thought that Scotiabank would eventually see its stock price rise in such a manner that would bring this stock’s yield down toward the 2.8%-3.6% range that the other four top-five banks hold. But that hasn’t been the case, with the company’s dividend yield remaining elevated relative to its peers.
That’s not to say investors don’t have a nice chart to look at — they do (see above).
But one of the key reasons for this appears to be the company’s strategic mix and focus on various Pacific Alliance countries, such as Mexico, Chile, Peru, and Colombia, for its growth. While I’d argue these countries have provided excellent growth on a relative basis and have driven such impressive upside in BNS stock, the company’s peers continue to hold premium multiples.
The key factor that investors should watch
I think Scotiabank’s future performance will really hinge on the ability of the company’s management team to execute in its non-core markets. With depressed profitability from its international investments continuing to weigh on this stock (and keep its dividend elevated), investors clearly want to see stronger loan growth and margins overall to begin to bid up shares.
Recent quarters have shown strength, with double-digit earnings-per-share growth and credit stability in its core lending portfolio driving strong returns. For now, I see the company’s elevated dividend yield as a buying opportunity, and that’s why it’s my top pick right now despite the aforementioned risks.
