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Bank Stocks

What are bank stocks?

Bank stocks represent partial ownership in a financial institution that’s licensed to hold and loan money. Over time, bank stocks have been relatively safe investments, as they offer products and services that most people need.

How do you choose a good bank stock? 

1. Look at the bank’s profitability

First, you want to be sure the bank is even profitable. To do that, you can use the following metrics. 

  • Return on equity (ROE): this metric tells you how much profit a bank makes from its shareholder’s equity. The higher this metric, the more efficient a bank is using its stakeholder’s money. 
  • Return on assets (ROA): the ROA tells you the overall profit a bank makes in relation to its assets. The higher the ROA, the more profit a bank makes from its assets. 
  • Efficiency ratio: the efficiency ratio tells you how much revenue a bank uses towards its operating costs. The lower the efficiency ratio, the more revenue a bank theoretically has. 

2. Assess the bank’s risks 

One of the biggest risks a bank has is losing money on an outstanding loan. As with profitability, a couple metrics could help you see how much banks are losing.

  • Nonperforming loans ratio (NPL): Nonperforming loans are loans that are at least 90 days past their due date. A bank with a low percentage of NPL (2% is a good ratio) is doing fairly well collecting loan repayments from its customers. 
  • Net charge-offs: a net charge-off is a bank’s declaration stating that a loan hasn’t been paid and is unlikely to be paid. As with NPLs, the less net charge-offs a bank has, the less money it’s losing on outstanding loans. 

3.  Check back here for our top picks 

Finally, we’ll keep this page updated with our staff writer’s reviews and assessment of Canada’s bank stocks. Our writers often use these metrics to help investors see which bank stocks are doing well and which are doing poorly. 

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Check back here for the most up to date information about bank stocks in Canada.

Top Articles

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| Andrew Walker

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| Aditya Raghunath

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The 1 TSX Stock I’d Go All-In On

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Stocks such as Toronto-Dominion Bank (TSX:TD)(NYSE:TD) should be at the top of every TFSA investor's shopping list.

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Canada’s energy giant Suncor Energy (TSX:SU)(NYSE:SU) is one of three top stocks that TFSA investors should consider.

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Top Value Stocks to Buy in This 2020 Bull Market

| Mat Litalien, MBA

The TSX Index is hitting new highs but there is still value to be found in stocks such as CIBC.

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| Joey Frenette

Here's why TD Bank (TSX:TD)(NYSE:TD) is a must-own stock for its incredible ESG performance.

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Investors: 1 ETF You Should Avoid… Forever

| Nelson Smith

I'd never buy the BMO Equal Weights Bank ETF (TSX:ZEB) for my portfolio. Here's why.

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Revealed: This Is the #1 Bank Stock!

| Chen Liu

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ALERT: Avoid This 1 Bank Stock!

| Chen Liu

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TFSA Investor: Is CIBC (TSX:CM) Stock a Buy for the 5% Dividend Yield?

| Andrew Walker

Deals can still be found in the TSX Index today. Is CIBC (TSX:CM) stock on sale?

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Bank Stocks

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| Matt Smith

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These 3 Dividend Kings Haven’t Missed a Payout in 50 Years

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| Andrew Button

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TFSA Investors: TD Bank (TSX:TD) vs. Royal Bank (TSX:RY) Showdown!

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Bank Stocks: Is This 1 Stock a Buy?

| Chen Liu

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| Andrew Walker

The TFSA is a great option for building a self-directed pension fund.

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| Andrew Walker

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Canada Revenue Agency: 2 Smart Ways to Get the Most From Your RRSP

| Christopher Liew, CFA

Early contribution to the RRSP and investments in dividend payers like the Canadian Imperial Bank of Commerce stock and National…

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| Aditya Raghunath

goeasy stock has outperformed markets in the last decade. Here's why you need to sell your position in the company…

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Retirees: Avoid the 15% OAS Clawback in 2020 With These 2 Tricks

| Christopher Liew, CFA

The way to counter the 15% OAS clawback is to defer receiving it and invest in dependable dividend payers like…

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TFSA Investors: Avoid This Top 3 Bank!

| Chen Liu

Toronto-Dominion Bank is trading above intrinsic value. I would avoid the stock in your TFSA.

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| Christopher Liew, CFA

The last thing retirees need during a market crash is mental stress and financial dislocation. You can plan ahead by…

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TD Bank (TSX:TD): 1 of the Best Bank Stocks to Own for the Next 100 Years

| Kay Ng

Buy TD (TSX:TD)(NYSE:TD) stock now while it’s a good value and before it increases its dividend next month.

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Canada Revenue Agency: Combat Higher CPP Pension Contributions With Dividend Stocks

| Kay Ng

Shrug off higher CPP contributions with dividend stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and A&W Revenue Royalties Income Fund (TSX:AW.UN).

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CAUTION: Is it Too Soon to Buy CIBC (TSX:CM) Stock?

| Joey Frenette

CIBC (TSX:CM)(NYSE:CM) stock is dirt cheap, but is it a bargain buy amid a nasty industry-wide downturn?

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Dividend Stocks

How Many Stocks Should Investors Hold Inside a TFSA?

| David Jagielski

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a stock that can be an ideal fit for many different types of portfolios.

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Bank Stocks

Royal Bank (TSX:RY): Does Big Equal Best?

| Chen Liu

Royal Bank of Canada is trading slightly above intrinsic value. I would avoid the stock in your RRSP or TFSA…

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Dividend Stocks

Why CIBC Could Be One of Canada’s Top Banking Stocks to Buy for 2020

| Mat Litalien, MBA

Canada's worst performing bank is also Canada's cheapest. Canadian Imperial Bank of Commerce (USA)(TSX:CM) Stock is positioned for a strong…

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Dividend Stocks

Don’t Just Buy CIBC (TSX:CM) Stock for its 5.3% Yield

| Victoria Hetherington

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a key stock for investors seeking a rich yield, but there are more…

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Bank Stocks

Canadians: 1 Bank Stock That Will Supercharge Your TFSA

| Ambrose O'Callaghan

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) stock offers top-end income that can fuel tax-free dividends in a TFSA.

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Retirees: Supplement Your Pension With These 2 Stocks!

| Chris MacDonald

For retirees looking to supplement their pension income, consider investing in companies like Chorus Aviation Inc. (TSX:CHR.B) and Bank of…

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Frequently Asked Questions

Why invest in bank stocks?

Quality bank stocks have a strong history of generating profits and managing crises, making them a great investment.

In addition to their strong performance, many of Canada’s top banks pay dividends, with payouts that increase over time. For Canadian investors looking to pocket a little extra from their stocks, dividends can help you buy more shares or more cash.

Finally, bank stocks can help diversify your investing portfolio. If you already have stocks in other sectors (mining, technology, energy), bank stocks could add much needed stability, as well as expose you to the gains in another sector.