Canadian Bank Earnings | Where to Invest Safely and Where to Trade?

August 31, 2021 | Editorial Team

Things are starting to look up as the world slowly recovers from the devastation of the COVID-19 pandemic. Financial analysts project that Canadian Bank earnings and profits will be much higher than initial estimates. Due to the effects of the pandemic, last year resulted in low quarterly earnings for Canadian banks.

However, there are a number of positive factors contributing to the increase in earnings for second-quarter profits. Improved credit conditions are pushing analysts to revise their estimates for the top Canadian banks. These include the Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, TD Bank, and more.

Why are Canadian Bank Stocks Falling?

Like most of the other capital markets, Canadian bank stocks took a serious hit last year due to the global pandemic. Interest rates dropped drastically. The Canadian government attempted to provide financial aid to businesses and its citizens. However, this hurt the banking market and its earnings.

The Canadian government is attempting to stimulate the damaged economic state of Canada. However, this happens at the cost of the major banks. The low-interest levels cause investors to speculate that the growth will be slow.

What is the Strongest Bank in Canada?

The top banks in Canada have the name: The Big Five. These include The Royal Bank of Canada, Toronto Dominion Bank, Bank of Novia Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce. Canadian banks are strong capital markets since they are notably stable. Although all top 5 are large banks, the strongest bank is commonly debated to be between TD Bank and Royal Bank of Canada.

Royal Bank of Canada

Royal Bank of Canada makes its name as one of the top banks in Canada with the highest net revenue. The bank has over 16 million customers around the world, and over 1,300 branches. RBC has reported net revenue of over C$12.431 billion and a capitalization of over C$150.35 billion. They have a favourable P/E ratio (price-to-earnings), making them a top contender in the capital markets.

Toronto-Dominion Bank

TD Bank also makes its name as a top bank with the largest number of assets in Canada. The total assets have a value of around C$1.4 trillion and the bank has over 22 million customers around the world. Recently analysts have seen a large growth with TD Bank and compare with the largest bank in Canada, RBC.

Are Canadian Banks a Good Investment?

Investors take an interest in Canadian Bank Stocks for good reason. Although the pandemic has caused negative economic impacts that affect the banking industry. Things are starting to bounce back as we see in earnings in the second quarter. Some reasons why Canadian banks are a quality investment include:

Safe Investment

Canadian bank stocks are generally regarded as low-risk investments. This is because the bank markets have entry barriers. The top 5 banks are a huge asset to the Canadian economy and prove to always provide steady income.

Compared to other global banks, Canadian banks handled the financial crisis of the pandemic much better. They are also the first banks to reinstate a rising dividend and reported profits. Canadian bank stocks remain some of the most stable investments based on a closer look at historical averages.

High Paying Dividends

Dividends are a distribution of the bank’s earnings towards its shareholders. Canadian bank stocks have a history of high-paying dividends with steady growth. This is largely due to the fact that as a large bank, the earnings are high and the company is able to distribute it to its shareholders.

Due to the pandemic a year ago, the government put a pause on dividend growth. But with the business market reopening, these measures are starting to roll back. Canadia bank stocks have begun to release their quarterly earnings. Showing that they are on their way to steady growth again.

Long-Term Investments

Canadian bank stocks are also great long-term investments. The Big 5 banks, because of their strong wealth management and international exposure have shown steady growth. Although the pandemic a year ago was a clear drawback, these bank stocks have continued to outperform quickly.

The Big 5 Banks have all shown a steady increase in the past 5 years.

Which Canadian Bank is Best for Stock Trading?

The best Canadian Bank Stocks are always a part of the Big 5 due to better wealth management. Before taking a look at our top pick, we talk about what each of the top 5 has to offer. We take a look at the data and gather analyst insight to help choose the best banking investment for you.

Bank of Montreal- BMO has made its name as one of the most consistent banks according to investment management professionals. Over the past 20 years, the bank has been able to consistently increase its capital growth. This makes BMO stick a great long-term investment.

Although the bank does not set aside impressive dividend yields, it is a safe stock to invest in. While on a low from the pandemic over a year ago, it is a great time to buy into BMO stocks.

Canadian Imperial Bank of Commerce- CIBC is a great stock for stock trading because of its high dividend yield. If you invest a considerable amount and practice investment management, you can expect a sizeable yield with CIBC stock.

National Bank of Canada- National Bank is a top choice this year and you can expect rewarding dividend yields. The bank offers a high 4.1% yield and is set to move forward. In the past 10 years, BNC has continued to increase its dividends.

Royal Bank of Canada- RBC is one of the biggest banks, which also means that it is one of the safest stocks to own. They also have large global exposure including the U.S. and more. Even during the economic recoveries, the bank is able to provide stable dividends and earnings. The bank stock has high promise for capital growth and is still well-priced for its size.

Toronto Dominion Bank- TD Bank is our top pick for best bank stock as of right now. The bank has high global exposure, especially in the U.S. Since the U.S. has had a more expedited vaccine distribution, this may push TD stock to grown and outperform quicker. This stock also has the highest growth rate, which also keeps its dividend yield high.

How to Determine a Good Bank Stock

Candian banks are generally regarded as safe or “good” bank stocks. However, investors and analysts share some of their tips to help you assess the value of a stock whether you are investing yourself using a robo advisor or through online brokers. Some of these key indicators include:

Market capitalization- This term refers to the total amount of all the company’s shares of its stock. To calculate the market cap, multiply the price of a stock with the number of outstanding shares of stock. This value helps us understand and compare the size of the bank in comparison to others.

P/E ratio (Price-to-earnings)- This ratio compares the stock price in comparison to the company’s earnings. To calculate the P/E ratio, use the stock’s current price divided by the earnings per share. A high P/E ratio usually means investors expect future growth.

P/B ratio (Price-to-book value)- This is an important factor since it compares the price to the value of assets. To calculate the ratio, use the company’s stock price and its book value per share. Usually, investors will opt for a low P/B ratio since this means they are paying less.

Dividend yield- The dividend yield is how much the bank distributes its earnings in comparison to its stock price. To calculate the dividend yield, use the annual dividend per share and the price. It essentially tells us how much we can make from the stock. While a high dividend yield is important, you also want to look for dividend growth.

Canadian flag and stock graph

Which Canadian Bank Pays the Highest Dividend?

As of right now, the Bank of Nova Scotia has the highest dividend yield. However, it is important to note that their recovery after the pandemic has also been the slowest. In terms of the fastest-growing dividend yield, TD Bank takes the cake.

Canadian Bank Earnings set to Beat Rising Estimates on Deal Fees, Reserve Releases

Investors and analysts are keeping an eye out for the second-quarter earnings of Canadian banks for a number of reasons. Analysts expect the earnings to outperform initial assessments. This is largely due to the money set aside a year ago at the start of the pandemic. This money set aside was initially for credit losses or impaired loans that banks were preparing for.

The Bottom Line

Banks are starting to release the provisions for credit losses from their reserves, fueling the profit surges we are seeing today. With ongoing government support and less impaired loans, banks are able to release more than they anticipated. Businesses and customers have been keeping up with their loans and debts allowing fewer credit losses.