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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.

Recent Bank Stocks News

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| Joey Frenette

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Is TD Bank (TSX:TD) Stock the Best Banking Name to Own?

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| Andrew Button

Thanks to favourable U.S. Macro conditions, financials like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) led the TSX higher.

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| Kay Ng

You can secure excellent and growing income from Enbridge Inc. (TSX:ENB)(NYSE:ENB) and another safe dividend stock right now.

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Millennial Investors: How to Build a $115,000 TFSA With Only $10,000

| Amy Legate-Wolfe

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) are the perfect TFSA pair to turn a little cash into a gold…

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| Victoria Hetherington

Laurentian Bank of Canada (TSX:LB) and three other stocks can add a mix of defensiveness, growth, and passive income to…

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| Ambrose O'Callaghan

Investors just starting out can build a solid portfolio by targeting stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and others.

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| Kris Knutson

With all the contradicting opinions about the Canadian banking sector, should you buy or sell banks like Canadian Imperial Bank…

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Why Bank of Nova Scotia (TSX:BNS) Is a Great Pick for Your TFSA

| Prosper Bakiny

Here is why you should consider adding shares of Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to your TFSA.

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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.