All 11 primary sectors of the S&P/TSX Composite Index finished 2025 in positive territory. The materials and financials sectors led the rare sweep, posting strong gains of 100.6% and 35.3%, respectively. Analysts, however, think a repeat performance this year is unlikely.
But for investors seeking a lower risk option in 2026, Canadian banks stand out. The country’s Big Six lenders are far less sensitive to volatile commodity prices than mining companies. Because most of their earnings come from recurring domestic revenue, the exposure to external shocks is lower. Furthermore, the long-standing track record suggests dividend payments will remain safe and sustainable.
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Pillars of stability
TSX’s big bank stocks are lower-risk choices for three compelling reasons. Their strong capital positions act as cushions against economic volatility. Diversified domestic revenue limits the impact of global shocks, and steady dividends provide healthy, long-term returns for risk-averse investors.
Fitch Ratings expects the Canadian banking sector to face challenges in 2026. Heightened geopolitical risks at the start of the year, along with trade tensions and elevated consumer leverage, are cited as significant headwinds. Still, the global credit rating agency projects the banks to maintain solid financial profiles and deliver incremental profitability.
Solid earnings
Canada’s Big Six reported robust earnings growth in fiscal 2025, notably in the fourth quarter. In the three months ending October 31, 2025, all of them surpassed earnings per share (EPS) expectations. Strong lending volumes and improved capital markets activity overshadowed the increase in expenses and provisions for credit losses (PCLs).
The full-year results reflect resilience, aided by diversified revenue streams. Investors are happy with the profitability even in a challenging economic environment. Only the Toronto-Dominion Bank reported a year-over-year profit drop (-10% to $3.3 billion) in Q4, although EPS rose to $2.18 versus analysts’ estimate of $2.01.
Dividend pioneer Bank of Montreal (TSX:BMO) saw its profit (adjusted basis) surge 63% year over year to $2.51 billion compared with Q4 fiscal 2024. BMO also raised its quarterly dividend by 2.5% following the significant decline in PCL to $755 million from $1.25 billion.
Aside from BMO, Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, and TD announced dividend increases. The Bank of Nova Scotia held its quarterly dividend steady.
Most attractive option
BMO appears to be the most attractive option among Canada’s elite group. The significant drop in PCLs, including its U.S. operations, indicates stabilized, if not cleaner, credit trends. This bank stock continues to gain momentum, advancing 21.6% in the last six months.
In fiscal 2025, net income rose 19.1% to $8.7 billion versus fiscal 2024. According to Darryl White, CEO of BMO Financial Group, revenue increased in all of the bank’s diversified businesses. “We enter 2026 in a position of financial strength. We’re deploying capital to drive future growth and higher shareholder returns,” he said.
BMO is Canada’s oldest financial institution. The $130.8 billion bank is 208 years old, with a 196-year dividend track record. Its acquisition of the Bank of the West in the U.S. gives BMO superior diversification and balanced revenue mix. If you invest today, the share price is $184.56, while the dividend yield is 3.62%.
