For decades, investment advisors have been telling clients that you can't go wrong investing in Canada's Big Six banks.
Canada's banking system is strong with little competition to siphon profits. Banking regulators are cautious. Analysts point out Canadian banks fared better than any other system in the 2008-09 financial crash.
Right now, the Big Six look like they offer a back-up-the-truck and buy opportunity.
Following super results since the 2008 crash, banks have done well this year with a recent average return of 9.9 per cent for the year compared with 7.8 per cent for the TSE composite index.
Should investors pile into any or all of the Big Six banks?
For a long-term investor, the answer is yes — if one can stomach price turbulence that could deflate already cheap bank stocks further.
For investors with that attitude, the banks offer handsome dividends: 4.97 per cent for CIBC, 6.4 per cent for Bank of Nova Scotia, 4.9 per cent for Bank of Montreal, 4.75 per cent for TD Bank and 4.1 per cent for National Bank.
All of the Big Six are near their lows of this year and well below the year's highs.
At $117.20, Bank of Montreal is 18 per cent below the high. Scotiabank, at $64.58, is 20 per cent off the high. CIBC at $56.59 is 15 per cent below top price. RBC, at $124.59, is 11 per cent off the high and TD, $79.75, is about 15 per cent under.
Best performer is National Bank, $97.85, a mere eight per cent off the high.
Some of these banks pose extra risk simply because of U.S. or international operations.
Scotiabank poses risk from Latin American bank holdings and uncertainty perhaps explaining the high dividend yield. TD gets half its business from the U.S. where a banking crisis seems to have been stalled for now.
Bank of Montreal gets almost 45 per cent revenue from the U.S. and has just acquired a U.S bank that increases BMO assets by one-third.
CIBC is a Canadian bank and National is a Quebec-based bank facing only domestic issues.
Concerns investing in the banks encompass the economy. The banks have already increased reserves for bad loans and if the projected recession arrives later this year or in 2024 those provisions will increase further declining profits.
Stock markets [are presumed to] continue falling until interest rate hikes stop or until we discover there is no recession around the corner.
Tough times for banking profits appear to lie ahead in the short term if only in the minds of analysts and some investors.
In the long-term, buying them looks like a great bargain.
I know an investor who bought Bank of Montreal in 1988 for $7.50 a share after splits, averaged a four per cent dividend yield for the last 38 years and has a capital gain of 1,480 per cent.
BMO didn't do as well as some of the others.
Investors wanting a piece of all six might consider the bank Exchange Traded Funds by BMO and RBC.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
