October 21, 2014

The National Bank of Canada (NA)

The National Bank of Canada (NA) is the “little brother” of the “Big Six” Canadian banks.  Some analysts refuse to lump the bank into the same category as Toronto-Dominion Bank (TD), Royal Bank (RY), Bank of Montreal (BMO), the Bank of Nova Scotia (BNS) and the Canadian Imperial Bank of Commerce (CM).  While the National Bank does do substantial business within Canada, and has many of the hallmarks that the other Canadian banks have – such as a strong commitment to responsible, stable growth – it does standout from the other give banking giants in the Great White North.

 

The National Bank Financial Group (NA) was established in 1859 Montreal, Quebec (then known as Lower Canada), by several influential businessman who wanted to control their own finances.  Its head office remains in Montreal to this day.  The National Bank controls over 145 billion in assets, which is obviously considerable, but a decisive 6th largest when compared with the five international conglomerates mentioned above.  The Bank has over 18,000 employees, almost exclusively in Canada.  National Bank (NA) is the leading bank in Quebec, and has branches in almost every Canadian province.  While it does have an international influence, it is not very extensive.  This Canadian-centric focus differs sharply from the international expansion plans we have seen from the other major banks.

 

National Bank (NA) offers services in the fields of securities, insurance, wealth management, mutual funds, pension funds, and personal banking.  Their corporate organization consists of three primary business segments: Personal & Commercial, Wealth Management, and Financial Markets.  Overall, it is a very similar structure to the other banks.

 

The most recent large-scale news for the bank has been the large acquisition of the private Wellington West investment firm.  The new subsidiary had over $10-billion in assets under their umbrella and was focused primarily in the sectors of agriculture, mining and energy.  The firm employed 223 advisors at 50 branches across the country, and serviced 68,000 individual investors.  Since 2005, the company had an impressive record with an annual growth rate of 12% during some tough economic times.  National Bank (NA) purchased Wellington at a valuation of $333 million.  This acquisition fits in neatly with the company’s corporate profile of concentrating on its operations in Canada.  This is in stark contrast to the American acquisition of its competitors.

 

There some experts out there who feel that National Bank (NA) is actually the best bet out of the Canadian banks despite its relatively small market capitalization (nearly 13 billion).  A recent study by the Globe and Mail showed that National Bank has produced the largest dividend growth over the last 10 years at 11%.  This is an impressive record when one considers the economic turmoil of the past decade.  National Bank (NA) has a Price-to-Earnings ratio of 11.84 and is trading near its 52-week high at around $80-per share.  Its annual dividend of $2.84 represents a 3.60% yield.  While this is substantial, it is not as large as that of some of the other bank stocks out there.  How you feel about National Bank’s prospects relative to the other banks probably depends on if you believe the aggressive international expansions pursued by the other “Big Six” brethren will pay off, or cut into their existing profit margins.

 TSE:NA

 

NA Dividend Metrics

Ticker Name Dividend Yield Payout Ratio DEBT_TO_MKT_CAP Dividend Growth 5 years Dividend Growth 1 years
NA National Bank of Canada 3.33% 41.40% 3.01 6.82% 3.22%

 

 

 

CIBC (CM)

 

 

The Canadian Imperial Bank of Commerce (CM) commonly referred to as the CIBC, is another of Canada’s “Big Six” banks.  It became the large conglomerate that it is today on June 1, 1961.  On this date the Canadian Bank of Commerce (established in 1867) and the Imperial Bank of Canada (established in 1865) merged together to form the CIBC.  It has been a major player on the Canadian banking scene from the time it was established as a country.  The company is heavily concentrated in Canada, but also has branches in the Caribbean and a minor prescence in Asian markets.  It has more than 42,000 employees worldwide that run more than 1,100 branches and service more than 11 million clients.  Their market capitalization was about $30.7 billion at the end of last quarter.

 

CIBC CMCIBC (CM) chooses to categorize its business ventures into two main divisions: CIBC Retail Markets and Wholesale Banking.  The Retail Markets division offers the personal banking options that most banks are known for including loans, mortgages and personal investment services.  The Wholesale Banking branch offers the full range of services specific to corporate banking and capital markets.

 

Recently, CIBC (CM) CEO Gerry McCaughey made news when he announced that the bank would be expanding into the USA with a buyout of the American equities company American Century Investments (formerly owned by JP Morgan Chase).  He told reporters that, “I believe that U.S. equities are going to be the asset class of choice in the years to come.”  This move comes on the heels of notable acquisitions by several of Canada’s other banks.  The move typifies the reputation that CIBC has amongst the Canadian banks as being the one that is exposed to the most risks.  This is also why it got hit the hardest coming off of the recent market downturn in 2008.

 

While the CIBC (CM) is still a strong dividend option, it is routinely ranked in the bottom 1-2 when comparing the big Canadian banks.  Their reputation for taking risk has hurt them in the past, but some investors believe that it will eventually pay off and that the stock is currently undervalued.  It has a current Price-to-Earnings ratio of 11.91 and a dividend ratio of 4.7%.  Those are definitely attractive financials, but my instinct would be to go with one of the bigger, and better-managed Canadian banks on the market.  I just place a high value on stability if I am looking for a dividend-paying stock for the long-term.  The other option is to simply buy a Canadian ETF (most Canada ETFs consist of 30-40% bank holdings) or an ETF that targets only the Canadian financial industry.

TSE CM

 

CM Dividend Metrics

Ticker Name Dividend Yield Payout Ratio DEBT_TO_MKT_CAP Dividend Growth 5 years Dividend Growth 1 years
CM Canadian Imperial Bank of Commerce/Canada 4.22% 59.13% 1.39 5.05% 0.00%

 

 

TD Bank (TD)

The Toronto-Dominion Bank and its subsidiaries are collectively known as the TD Bank Group (TD).  Based out of Toronto, Ontario, Canada, TD is becoming an increasingly multi-national bank with operations that span the entire breadth of the banking industry.  It employs more than 82,000 people around the world and serves about 19 million customers.  The Toronto-Dominion Bank was officially formed on Feb. 1, 1955 when the Bank of Toronto (founded in 1855) merged with The Dominion Bank (started in 1869).  TD has about $630 billion dollars worth of assets and has become a leader in the online banking industry.  It is one of the, “Big Six” Canadian Banks, and shares the usual attributes that all six of the Canadian banks are known for. TD is now on RBC’s radar as it going for the #1 spot for the biggest bank in Canada.  Foremost amongst these qualities is a representation for cautious investing, low rates of leverage, and responsible expansion.

 

TD bankWhile investors will often refer to investing in the Canadian banks as if they were all the same, there are some differences.  TD and Royal Bank (RY) are decisively bigger than the Bank of Nova Scotia (BNS), the Bank of Montreal (BMO), the National Bank of Canada (NA), and the Canadian Imperial Bank of Commerce (CM), and TD offers a range of services that only RBC can really match.  Ultimately TD is a very stable company that looks to be a great pick for investors looking for Canadian bank exposure.

 

The four main branches of the company are Canadian Personal and Commercial Banking (including TD Canada Trust and TD insurance), Wealth management (which is oversees TD Waterhouse and TD Ameritrade), Wholesale Banking (securities), and U.S. Personal and Commercial Banking (including TD Bank, commonly known as “America’s Most Convenient Bank”).  Together, TD and its subsidiaries represent a startlingly diversified company that has strong potential for growth (as evidenced by its recent push to attract first-time homebuyers in the USA), yet has a stable foundation in its Canadian roots.

 

TD’s reputation as a leader in online banking is well deserved.  Their user-friendly platform is impressive, and their array of easy-to-use investing options separate their online experience from that of their peers.  With the rise of “hands-off” index investing, TD is leading the pack in terms offering options that efficiently track the whole market, and for record low management fees.  These index funds can only be purchased online and are called the e-series.  They have been well received by proponents of the “efficient market” theory that don’t seek to beat the street and simply want to minimize their fees. They also take a major step in their customer service as they were the first bank to extend their weekly branch hours, open on Saturdays and now… they open on Sundays too! TD is definitely doing everything in its power to make the customer at ease.

 

The TD business model places a strong emphasis on risk discipline.  They even go so far as to explicitly say in their corporate profile that they, “Only take risks we understand… Systematically eliminate tail risk… Culture and policies aligned with risk philosophy.”  Proof that TD really incorporates this philosophy in their policies is evidenced by the fact that they are one of the only banks in the world rated AAA by Moody’s (think about how many governments, including the USA’s that are at risk of not having AAA status).  This definitely makes the company attractive from a long-term investment standpoint, which is what many dividend investors are looking for.  The stock is currently trading right around $80, with a 52-week high of $86.82.  I really like TD, but I feel that it is currently a little overvalued relative to the other Canadian banks.  Its Price-to-Earnings ratio is 14.33.  While these are solid overall numbers for a stock, they are below average for the class.  If you’re willing to pay a premium for the ultimate in stability, this maybe the company for you.

 TSE TD

TD Dividend Metrics

Ticker Name Dividend Yield Payout Ratio DEBT_TO_MKT_CAP Dividend Growth 5 years Dividend Growth 1 years
TD Toronto-Dominion Bank/The 3.23% 47.60% 0.95 8.18% 2.05%

 

 

Royal Bank (RY)

Royal Bank (RY) is Canada’s largest (measured in terms of market capitalization and assets) and most well-known bank. It is the only Canadian Bank  to be part of the top 35 largest bank in the world (by assets). It has grown steadily over recent decades to become one of the premier banks in the entire world.  As a Canadian bank it was not as exposed to the toxic debt, and over-leveraging that the huge USA banks were, and consequently they have come out of the recent economic downturn in relatively good financial shape.  Some industry elite even refer to Royal Bank as “The Goldman Sachs of Canada,” and while this might be overstating things by quite a lot (their business models are quite different), it does convey the level of prestige that the Royal Bank of Canada (RY) is receiving around the world.  RBC employs about 79,000 employees around the world who serve over 18 million clients in Canada, the USA, and internationally in 56 other countries.

 

rbcThe story of RBC starts back in the early 1870s and was originally named the Merhcants’ Bank of Halifax.  It was later renamed the Royal Bank of Canada in 1901.  RBC (RY) has risen with the rise of Canada and has been noted for its ability to execute bold strategies.  The company has a simple vision of, “Always earning the right to be our clients’ first choice.”  The bank is also one of North America’s most diversified banks with branches in personal and commercial banking, wealth management services, insurance, corporate and investment banking.  The company’s strategic goals are to continue to be the undisputed leader of financial services in Canada, to be a leading global provider of capital markets and wealth management solutions, and finally, in targeted markets, to be a leading provider of select financial services complementary to our core strengths.  I like this clear, concise notion of where the company is coming from and where it is going to.

 

 

 

RBC (RY) has recently been adding to growing umbrella of operations.  For its Canadian base they have installed a currency exchange platform for stock traders who wish to own American stocks inside their tax-advantaged retirement accounts.  They have also recently come out with their own line of exchange traded funds (ETFs) in order to compete with their Canadian banking brethren.  Internationally, they have been recognized Scorpio Partnership (a specialist consultancy) as the 6th greatest wealth management company in the world.  As other corporations have pulled out of the USA investors market, RBC continues to expand its wealth management operations there, even as they sold their American retail banking properties.  RBC has been hit by their exposition to the US market and Dexia Partnership in 2011. However, they are sitting on a solid balance sheet and are well positioned for the upcoming years.

RBC management has made a lot of smart decisions in the past decade and their growth has been substantial as a result.  If you have extremely low risk tolerance then the recent downgrade from AAA to AA by Moody’s due to increased exposure to securities might be of note to you, but I believe now is the time to be getting into securities around the world.  Its Price-to-Earnings ratio is around 14, which is higher than some of the other Canadian banks, but its yield of 4.50%, dividend-raising history, and strong global positioning, make RBC stand out amongst its peers for me.

 TSE RY

RY Dividend Metrics

Ticker Name Dividend Yield Payout Ratio DEBT_TO_MKT_CAP Dividend Growth 5 years Dividend Growth 1 years
RY Royal Bank of Canada 4.50% 57.26% 1.23 8.91% 0.00%

 

 

 

 

Bank of Nova Scotia (BNS)

The Bank of Nova Scotia (BNS) (more commonly referred to as Scotiabank) is one of Canada’s “Big Six” banks.  It was founded in 1823 in Halifax, Nova Scotia.  As part of Canada’s well-regulated banking industry they have enjoyed impressive results over the past few years.  While the Canadian banks all share some characteristics, they do differ in subtle ways.  Scotiabank is known for its prescence in Latin America and Asia and claims that the fact they have over 18.6 million customers around the world in 50 countries (including 2,000 branches and offices and 3,700 AMBs) makes them the most internationally diversified of the Canadian bank choices. This also makes BNS the best positioned Canadian Banks to benefit from emerging markets in South America such as Brazil.

 

The five strategic priorities outlined in their most recent news release stated that Scotiabank was focused on sustainable and profitable revenue growth, capital management, leadership, prudent risk management and appetite, and efficiency of expense management.  With over 73,000 employees, the Bank of Nova Scotia is a stable banking option that looks to secure profits for investors long into the future. They recently decided to not increase their dividend (while reporting 2011 Q3 financial results) as Richard Earl, BNS CEO, sees more investing opportunities and prefer keep BNS liquidity for growth than redistributing in form of dividend. Nonetheless, BNS dividend yield is sitting around 3.90% (Oct 2011) with a healthy dividend payout ratio.

 

ScotiaBank BNSScotiabank attributes success within Canada to a, “Committed team that lives our shared values and works together to provide customers with expert advice and service.  A solid foundation of key strengths and priorities, including a strong capital base, and excellent risk and expense management skills.  Diversification of our business lines, products, and locations with a clear focus on our strategy.”  The Canadian division of the bank has over 7.6 million customers that are serviced by over 1,000 braches.  Their domestic retail operation has two primary categories that are retail banking/small business banking and commercial banking.  The set-up is pretty standard for a retail bank with services ranging from the basic mortgages, loans, and credit cards to the business banking, lending, and leasing required by larger entities.

 

The Bank of Nova Scotia has the stable dividend history that one would expect of such a mature company.  At its current price it has an attractive Price-to-Earnings ratio of 12.91 and its dividend yield is 3.9%. As many other Canadian banks, BNS is lurking for buying smaller banks in order to growth their market shares. Scotiabank is believed to make some purchases in 2012 in one of their favorite market for expansion: South America.

 

Instead of complaining about bank fees join the dark side and become a shareholder.  Banks are created to make money, and the Bank of Nova Scotia (BNS), as well as the other Canadian Banks are in a great situation to do this as the market regains steam.

TSE BNS

BNS Dividend Metrics:

Ticker Name Dividend Yield Payout Ratio DEBT_TO_MKT_CAP Dividend Growth 5 years Dividend Growth 1 years
BNS Bank of Nova Scotia 3.62% 50.10% 1.2 7.28% 1.53%

 

 

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Bank of Montreal (BMO)

 

The Bank of Montreal (BMO) or “bee-Mo” as it is commonly referred to by investors, is one of the large banks in Canada that form an oligopoly.  As a Canadian Bank, they are known for their diverse holdings, well-regulated lending practices, and large dividends.  The Bank of Montreal was founded in 1817 and now has over 11 million clients.  It is the smallest of the Big 5 (excluding National Bank).Divisions of the company include personal banking, commercial banking, wealth management, and capital markets. They are especially strong in wealth management since  the acquisition of Harris Bank (a US bank concentrated in servicing 1M$+ clients).   They have been able to use Harris’ knowledge and know-how to serve their Canadian millionaire clients the same way. Overall, it is well-rounded company with solid base, and a drive towards expansion.  The president and CEO of the personal and commercial banking branch recently stated that, “We are delivering strong results by differentiating out business from our competitors, and with a clear focus on one vision and one brand promise that both start with the customer.”

 

BMOThe major recent news for BMO has been its acquisition of M&I bank, which was based out of the North-Eastern USA.  The purchase was easily the largest deal in the history of the Bank of Montreal and adds considerably to the bank’s holdings in the USA.  Up until this year. BMO had been content to limit their USA exposure to their retail operation – Chicago-based Harris Bank – which they purchased in 1984 for 718-million.  The addition of M&I’s 374 branches gives Bank of Montreal about 700 US locations, focused primarily in Wisconsin, Minnesota, Missouri, Indiana, and Florida.  This means that the company’s USA outlets are starting to rival its presence in its own country (900 locations in Canada). BMO is not only expanding its retail banking operations internationally, but has its sites set on the international securities scene as well.

 

Since 2009 BMO Capital Markets has hired more than 130 new director-or-higher level employees in the USA.  This adds to the over 2,000 international employees that the branch now employs, including over 1,000 in the USA.  With many of the Canadian banks taking advantage of their strength relative to their stumbling USA competitors, BMO is definitely looking to gobble up market share in the banking vacuum that the 2008 downturns caused within the industry.  Perry Hoffmeister, the head of USA investment and corporate banking explains that, “With all the changes happening on Wall Street, we have been building our wholesale business by taking advantage of the dislocation to hire great bankers, salespeople and traders.”  It remains to be seen whether this large expansion into the USA will benefit the company in the long run, but it is definitely a bold attempt to keep up with its competitors such as Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD).

 

With many experts claiming that BMO is the best current value of the Canadian banks, the stock is trading near his 52-week high of $64.  Its Price-to-Earnings ratio is a respectable 12.30 and it offers the substantial dividend of 4.61%. Our only concerns is that BMO has always been the bank with the highest dividend payout ratio. Therefore, if you are looking for a high yield , a bit rock’n roll bank, BMO should be part of your watch list.  If you believe that the American economy will begin to pick up and you are investing for the long term, the Bank of Montreal (BMO) maybe the perfect way to cash in for a stable dividend player.

TSE BMO

 

BMO Dividend Metrics:

Ticker    Name                       Dividend Yield    Payout Ratio    DEBT_TO_MKT_CAP    Dividend Growth 5 years    Dividend Growth 1 years
BMO      Bank of Montreal    4.61%                          58.75%                          2                                     7.25%                                      0.00%

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Canadian Dividend Stocks in Financials

Canada’s financial sector has recently become a national point of pride, but it has been a point of pride amongst dividend investors for quite a while now.  During the recent economic downturn Canadian banks stood tall (as did our economy in general).  So much so actually, that the rest of the world has now come knocking on Canada’s door, and men like former finance Minister (and briefly Prime Minister) Paul Martin are being invited all over the world to consult on how to bring aspects of the Canadian system to other countries.  The effective regulations that were put in place to prevent overleveraging, sub-prime mortgages, and low capital rates, will really be a key advantage for the Canadian financial sector heading forward.  This is a great thing for Canadian investors as financials make up close to a third of the TSX 60.

 

CIBC branchIf you’re not familiar with your options in Canadian financials there are basically six major banks, and then everyone else.  These banks used to be called, “The Big 5,” which included the Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, and the Bank of Nova Scotia.  These days the National Bank of Canada is usually added to the mix, and the group is affectionately dubbed, “The Big 6”.  The truth in under 50 words is that you probably can’t go wrong investing in any of these six entities.  They are the definition of solid, stable, dividend machines.  All six of the banks make money hand-over-fist, and they all boost their dividends regularly.

 

“The Big 6” are not just banks in the traditional sense of the term.  They are amongst the largest financial entities in the world.  Over the past three decades the banks have scooped up the majority of trust and brokerage companies in Canada and started their own insurance and mutual fund wings as well.  The fact that there are six companies that can compete means that no single company is approaching monopoly territory, and all six can push each other to look for new growth and ideas. More recently, National Bank (NA) has been voted as the most financially solid bank in North America while Royal Bank (RY) is in the top 50 largest bank in the world.

 

These major banks share so many attributes, that in order to differentiate between them most people usually compare the degree of international exposure and the subsequent risk-reward status of each of the companies.  Many of these differences occur in securities and equities branches of the banks.  CIBC (TSX: CM) has taken some hits recently as it had a broader exposure to the financial downturn than any of the other Canadian banks.  It usually ranks near the bottom in direct comparisons.  The Bank of Nova Scotia (TSX: BNS) is one of Canada’s oldest banks and is known for being heavily invest in the Caribbean and China; consequently, its fortunes relative to its competitors will rise and fall with how these investments do. ScotiaBank is considered as the most geographically diversified Canadian Bank.  The Bank of Montreal (TSX: BMO) or “Bee-Mo” as locals it, consistently falls into the middle of the pack when analysts study the Canadian financial sector.  Its main differentiating characteristic is that it has a large exposure to the USA market through its subsidiary Harris Bank (concentrated in wealth management).  The National Bank (TSX: NA-T) is a recent favourite of investors according to the globe and mail because it has been focusing on business within Canada.  As one might expect this has lead to decent and sustainable profits, but the stock also has less of a growth profile than others in the sector. National Bank has recently made some interesting move in the wealth management after successfully buying Wellington West, Montrusco Bolton retail department along with HSBC Canadian brokerage firm.

 

TD Bank (TSX: TD) and RBC (TSX: RY) are the two largest of the Canadian banks by a substantial margin (so much so that some industry analysts have begun calling them “The Big Two”, and yes Canadian financial analysts are very original when coming up with nicknames).  Both banks are known for having great management that is very loyal to both companies, and have all the positive traits that are typical of the group as a whole.  TD is commonly seen as having the best retail operations in Canada, including the best online selection of services and their E-Series index funds are highly recommended.  They also have a large exposure to the USA in the Northeastern USA through their subsidiaries TD Ameritrade and TD Banknorth.  They have also changed the client service standards after improving their open office hours, extending them on Saturdays and Sundays.Finally, RBC is the biggest player in the Canadian financials game.  It was recently ranked as the world’s 10th safest bank (TD came in at 15) by Global Finance’s 19th annual list.  RBC has increasing assets all over the world and is undoubtedly the most diversified of “The Big Six” options.  It is frequently the benchmark the others are compared to.

 

As I noted above, dividend investors that are looking for stability and cash-cows (who knew that banks make a lot of money?) really can’t go wrong with any of these choices.  All six of the big banks offer dividend re-investment plans (DRIPs) as well.  Canada also has several smaller financial stock options that include AGF Management (TSX: AGF.B), Canada Western Bank (TSX: CWB), Great-West Lifeco Inc. (TSX: GWO), Laurentian Bank of Canada (TSX: LB), Manulife Financial Corporation (TSX: MFC), Sun Life Fianancial (TSX: SLF), and IGM Financial Inc. (TSX IGM).  A quick and easy way to get broad exposure to this sector is to buy any of the many ETFs that track the sector.  The most popular is probably the iShares Financials ETF (XFN).

 

Click here to see each Canadian Bank Stock Analysis:

Royal Bank of Canada (RY)

Toronto-Dominion Bank (TD)

Canadian Imperial Bank of Commerce (CM)

Bank of Montreal (BMO)

Bank of Nova Scotia (BNS)

National Bank of Canada (NA)

 

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