Motley Fool Premium
  1. Category
    2. /
  2. Investing
    3. /
  3. Bank Stocks
    4. /

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. 

[KevelPitch adtype=151]

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

Recent Bank Stocks News

Bank Stocks

3 Reasons Why National Bank of Canada Is My Top Canadian Bank Pick

| Nelson Smith

The market continues to undervalue National Bank of Canada (TSX:NA), and for no good reason.

Read more »

The Motley Fool
Bank Stocks

A Major Risk for Canadian Banks: Real Estate

| Deon Vernooy, CFA

What impact could a real estate downturn have on Toronto-Dominion Bank (TSE:TD)(NYSE:TD), Royal Bank of Canada (TSX:RY)(NYSE:RY), The Bank of…

Read more »

The Motley Fool
Bank Stocks

10 Reasons to Own Royal Bank of Canada Shares

| Michael Ugulini

Royal Bank of Canada (TSX:RY)(NYSE:RY) is a stock you can count on for steady returns into your retirement years.

Read more »

The Motley Fool
Bank Stocks

With a New CEO at the Helm, Is Now the Time to Buy Canadian Imperial Bank of Commerce?

| Benjamin Sinclair

It didn't take long for new Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) CEO Victor Dodig to make his mark. So…

Read more »

The Motley Fool
Bank Stocks

Why I Believe Bank of Montreal Is Undervalued and Has Solid Growth Prospects

| Matt Smith

Bank of Montreal (TSX:BMO)(NYSE:BMO) boasts solid upside potential and a steady and sustainable dividend yield.

Read more »

The Motley Fool
Bank Stocks

Which Bank Should You Choose: The Bank of Nova Scotia or Canadian Imperial Bank of Commerce?

| Benjamin Sinclair

There are three good reasons to prefer The Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) over Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM).

Read more »

The Motley Fool
Bank Stocks

3 Simple Reasons to Prefer Royal Bank of Canada Over Toronto-Dominion Bank

| Benjamin Sinclair

Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are two of the most popular stocks to own in Canada.…

Read more »

The Motley Fool
Bank Stocks

Toronto-Dominion Bank or Canadian Imperial Bank of Commerce: Which Should Investors Bank On?

| Karen Thomas, MSc, CFA

A comparison of Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) reveals five compelling reasons to favour one…

Read more »

The Motley Fool
Bank Stocks

The Super Traders of Toronto-Dominion Bank and Royal Bank of Canada

| Deon Vernooy, CFA

How important are considerable trading profits and few loss-making trading days for Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada…

Read more »

The Motley Fool
Bank Stocks

Is Bank of Montreal or Toronto-Dominion Bank the Best U.S. Recovery Bet?

| Andrew Walker

Bank of Montreal (TSX:BMO)(NYSE:BMO) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are betting big on the U.S. recovery. Which one should you buy?

Read more »

The Motley Fool
Bank Stocks

2 Reasons to Avoid Royal Bank of Canada, and 1 Stock to Buy Instead

| Benjamin Sinclair

Royal Bank of Canada (TSX:RY) (NYSE:RY) is certainly firing on all cylinders, but there's a better option for your portfolio.

Read more »

Bank Stocks

2 Simple Reasons to Prefer Toronto-Dominion Bank Over Bank of Montreal

| Benjamin Sinclair

Toronto Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Montreal (TSX:BMO)(NYSE:BMO) both allow you to bet on the United States. But TD…

Read more »

The Motley Fool
Bank Stocks

Royal Bank of Canada Investor Alert: Do Big Profits Come With Higher Risk?

| Andrew Walker

Here are the risks new investors in Royal Bank of Canada (TSX:RY) (NYSE:RY) should consider before buying the stock.

Read more »

The Motley Fool
Bank Stocks

Which Canadian Bank Should You Buy?

| Benjamin Sinclair

We take a look at Royal Bank of Canada (TSX: RY)(NYSE: RY), Toronto-Dominion Bank (TSX: TD)(NYSE: TD), and The Bank…

Read more »

Bank Stocks

2 Simple Reasons Professional Money Managers Love Toronto-Dominion Bank

| Benjamin Sinclair

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a commonly held stock in professionally managed funds. This is no fluke.

Read more »

The Motley Fool
Bank Stocks

Why Canadian Imperial Bank Of Commerce Is a Top Pick

| Andrew Walker

Here's why Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) should be your top pick among the Canadian banks.

Read more »

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.