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Geographic diversification can be valuable for stock market investors. For this reason, investors should consider Canadian banks.Investors may not realize that Canadian banks tend to trade for lower valuations than their U.S. counterparts, and many also have a higher dividend yield.The following 3 are attractive for income investors.
Bank of Nova Scotia (BNS)
Bank of Nova Scotia (often called Scotiabank) is the fourth-largest financial institution in Canada behind the Royal Bank of Canada, the Toronto-Dominion Bank and Bank of Montreal. Scotiabank reports in four core business segments – Canadian Banking, International Banking, Global Wealth Management, and Global Banking & Markets.Scotiabank reported fiscal Q3 2024 results on 08/27/24. For the quarter, revenue rose 3.7% to C$8.4 billion, while non-interest expenses rose 8.6% to C$4.9 billion.Provision for credit losses (“PCL”) increased by 28% year over year to C$1.1 billion, which weighed on earnings. As a result, net income fell 13% to C$1.9 billion and diluted earnings per share fell 17% to C$1.41.The fiscal year-to-date results show a bigger picture. Revenue rose 5.0% to C$25.1 billion. Non-interest expenses increased by 5.9%, while PCL rose 39% to C$3 billion.The PCL as a percentage of average net loans & acceptances was 0.55%, up from 0.42% a year ago, whereas the PCL on impaired loans as a percentage of average net loans & acceptances was 0.51%, up from 0.38% a year ago.BNS has increased its dividend for 12 consecutive years and currently yields 5.2%.
Canadian Imperial Bank of Commerce (CM)
Canadian Imperial Bank of Commerce is a global financial institution that provides banking and other financial services to individuals, small businesses, corporations, and institutional clients. CIBC was founded in 1961 and is headquartered in Toronto, Canada.CIBC reported its fiscal Q3 2024 earnings results on 08/29/24. For the quarter, the bank’s revenue climbed 13% year over year. Provision for credit losses was C$483 million, down 34% from a year ago.The loan loss ratio was 0.29%, down from 0.35% a year ago. And net income came in C$1.8 billion (up 25%). Adjusted net income came in 10% higher at C$1.9 billion. Adjusted earnings per share rose 27% and the adjusted return on equity was 13.4%, down from 13.9% a year ago.The bank’s capital position remains solid with a Common Equity Tier 1 ratio of 13.3% versus 12.2% a year ago.From 2014 to 2023, the bank increased its EPS and DPS by 2.6% and 3.9%, respectively, per year in US$. Fiscal 2020 was one of those abnormal years with a pandemic triggering a decline in CIBC’s earnings. For the bank, one key area of growth is its loans and deposits portfolio. Rising loans lead to higher net interest income, which is a key source of CIBC’s revenues. CIBC’s fiscal 2023 deposits and loans and acceptances, respectively, rose 3.7% and 2.2% versus 2022.For fiscal Q3 2024, deposits and average loans and acceptances were up 5.5% and 2.2%, respectively, year over year. We project an EPS and DPS growth rate of 4.0% through 2029.CIBC has increased its dividend for 13 years and currently yields 4%.
Toronto-Dominion Bank (TD)
Toronto-Dominion Bank traces its lineage back to 1855 when the Bank of Toronto was founded. It is now a major bank with C$1.8 trillion in assets. The bank produces about C$14 billion in annual net income each year.TD reported fiscal Q3 2024 earnings results on August 22nd, 2024. For the quarter, TD reported revenue growth of 10% year-over-year to C$14.2 billion with a net loss of C$181 million due primarily to setting aside ~C$3.6 billion or C$2.06 per share as provision for the anti-money-laundering issue. Provision for credit losses (PCL) also rose 40% to C$1.1 billion.TD’s medium-term goal is to grow adjusted EPS by 7-10% per year. However, the foreign exchange fluctuation between the C$ and US$ will impact the effective growth rate. That said, TD’s EPS performance has been stable in the last decade despite forex volatility.From 2014 to 2023, the bank increased its EPS by 5.1% per year. We estimate TD can grow its EPS and DPS by 5.0% per year through 2029.TD normally has a dividend payout ratio of under 50%. The bank’s competitive advantage is its focus on retail banking in Canada and in the U.S. Still, as a leading North American bank, TD stands as one of the strongest banks that can navigate through any economic hardship.TD stock currently yields 5.1%.More By This Author:
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