6 Best Canadian Bank Stocks (Oct 2022)

Looking to invest in Canadian bank stocks throughout your personal accounts?

The Canadian banking system is in excellent shape, with more than 99% of Canadians owning at least one bank account.

For a large portion of Canadian investors, banks are an excellent addition to their portfolio.

We will cover some of the best Canadian bank stocks below and go over some of their key features.

Current State of Canadian Banking

A small number of Canadian banks dominate the entire banking industry, with the largest six banks in Canada serving 90% of the market.

Canada’s banks are solid, well-capitalized businesses, making them an excellent choice as an investment within most portfolios. 

The big six banks in Canada include:

  • Royal Bank of Canada (RBC)
  • Bank of Montreal (BMO)
  • Canadian Imperial Bank of Commerce (CIBC)
  • Bank of Nova Scotia (Scotiabank)
  • Toronto-Dominion Bank (TD)
  • National Bank of Canada

Keep in mind that the National Bank of Canada is much smaller than the other five banks across virtually all metrics. 

Pros and Cons of Canadian Bank Stocks

The stocks of the major Canadian banks tend to be highly correlated, meaning that they move together over time. The pros and cons of investing in one Canadian bank stock will likely apply to the others on the list as well.

Pros
  • Accessing a high and stable dividend yield
  • Adding relatively defensive, blue-chip companies to your portfolio
  • Investing in large and essential companies of the Canadian ecosystem
  • Likely having the backing of the Canadian government in the event of bankruptcy
Cons
  • Lack of explosive growth
  • Lower profit margins in low-interest rate environments
  • Increasing outside competition and digitization
  • Susceptibility to widespread credit meltdowns

Source: SPGlobal.com

Best Canadian Bank Stocks

Name of BankTickerMarket CapForward P/E Ratio
Royal Bank of CanadaRY.TO$178.35 Billion10.71
Toronto-Dominion BankTD.TO$158.61 Billion11.47
Bank of Nova Scotia (Scotiabank)BNS.TO$79.29 Billion7.89
Bank of MontrealBMO.TO$84.11 Billion8.78
Canadian Imperial Bank of CommerceCM.TO$55.58 Billion8.2
National Bank of CanadaNA.TO$29.64 Billion9.09
Summary of the stocks below

1. Royal Bank of Canada

rbc bank logo
  • Ticker: RY.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 4.19%
  • Dividend Payout Ratio: 43.35%
  • Dividend Yield (12-Month Trailing): 3.7%
  • Upcoming Dividend Date: Nov 24, 2022
  • Market Cap: $178.35 Billion
  • Forward P/E Ratio: 10.71

Royal Bank of Canada is currently the largest bank in Canada by market capitalization. Within a global context, it is also among the largest banks in the world (again by market capitalization).

RBC currently:

  • Employs over 89,000 employees around the world
  • Serves over 17 million clients
  • Works with clients across Canada, the US, and 27 other countries

Currently, the CEO of RBC is David McKay.

The bank focuses on several key business segments:

  • Personal and commercial banking
  • Wealth Management
  • Investor and Treasury Services
  • Capital Markets
  • Insurance

RBC is commonly the largest Canadian stock by market capitalization and has even led to the development of the “Canadian market curse.” Most Canadian companies that have grown in market capitalization to exceed RBC have faced some negative events shortly after and crashed.

Royal Bank of Canada also trades on the New York Stock Exchange under the ticker RY, for investors that wish to invest using US dollars.

RY has paid a great dividend to investors for a very long period of time and will likely continue to do so in the future. Because of the bank’s leadership position in Canada, it frequently trades at a slight premium versus the other large Canadian banks.

Despite the massive size of the company, it is still considered a value stock and trades at a very reasonable forward price-to-earnings ratio.

Currently, RBC’s dividend yield relative to other banks is slightly lower, but it is still a great-yielding stock when compared across sectors and industries.

Royal Bank of Canada is an excellent stock to consider for most portfolios, among the large Canadian banks.

2. Toronto-Dominion Bank

Toronto-Dominion Stock
  • Ticker: TD.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 4.15%
  • Dividend Payout Ratio: 41.74%
  • Dividend Yield (12-Month Trailing): 3.93%
  • Upcoming Dividend Date: Oct 31, 2022
  • Market Cap: $158.61 Billion
  • Forward P/E Ratio: 11.47
  • Average Analyst Rating: 2.6 - Hold

Toronto-Dominion bank is the second largest bank in Canada by market capitalization, at the time of writing. Similar to RBC, it is among a list of the largest banks in the world when considering its market cap.

Currently, TD:

  • Has over 90,000 employees worldwide
  • Works with more than 26 million clients globally
  • Has a huge online presence with over 15 million active online and mobile users

TD’s CEO is currently Bharat Masrani.

TD divides its operations into three key business lines:

  • Canadian Retail
  • US Retail
  • Wholesale Banking

As of April 30, 2022, Toronto-Dominion Bank had $1.8 trillion in assets.

Here in Canada (as part of Canadian Retail), TD offers personal and business banking, wealth management, insurance, and card programs through MBNA.

In the US, TD offers personal and business banking, auto financing, wealth management, and services through Charles Schwab. TD Securities also offers capital markets services to businesses and governments.

As the second largest Canadian bank by market capitalization, TD is constantly one of the largest Canadian stocks trading on the Toronto Stock Exchange. Toronto-Dominion Bank is also listed on the New York Stock Exchange under the same ticker, TD.

TD also has a great dividend-paying track record and is very likely to continue doing so for the foreseeable future.

TD is also a value stock and trades at a low price-to-earnings ratio relative to stocks in most other industries. Relative to the other major Canadian banks, TD pays a marginally lower dividend yield.

As another Canadian banking behemoth, TD is a good stock to analyze if you are considering investing in a Canadian bank.

3. Bank of Nova Scotia (Scotiabank)

scotiabank
  • Ticker: BNS.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 5.38%
  • Dividend Payout Ratio: 47.01%
  • Dividend Yield (12-Month Trailing): 5.86%
  • Upcoming Dividend Date: Oct 27, 2022
  • Market Cap: $79.29 Billion
  • Forward P/E Ratio: 7.89
  • Average Analyst Rating: 2.6 - Hold

Scotiabank is the third largest Canadian bank by market cap. Its main differentiating feature versus the other large Canadian banks is its presence across many countries in North and South America.

The Bank of Nova Scotia employs more than 90,000 people around the world and has around $1.3 trillion in assets as of April 2022.

Brian Porter is currently the CEO of the Bank of Nova Scotia.

Scotiabank separates its business across four main lines:

  1. Canadian Banking (44%)
  2. International Banking (23%)
  3. Global Banking and Markets (18%)
  4. Global Wealth Management (15%)
Four Business Lines

The Bank of Nova Scotia is a top three bank in Canada, Chile, and Peru. It is also a top five bank in Mexico and a top six bank in Colombia.

The bank has been ramping up its digital adoption and has won numerous awards for its digital services. Scotiabank is also listed on the New York Stock Exchange under the ticker BNS.

Although the bank is significantly smaller in market capitalization than both TD and RBC, it remains one of the largest publicly-traded companies in Canada.

Currently, with the highest forward dividend yield among the Canadian banks, Scotiabank is trading at a very attractive valuation given the market volatility faced by investors throughout 2022.

Value investors will find Scotiabank’s stock attractive because metrics such as its price-to-earnings ratio are relatively lower when compared to TD and RBC.

If you are looking for a relatively inexpensive Canadian bank stock with a very high dividend yield, Scotiabank is an excellent stock to consider.

4. Bank of Montreal

BMO
  • Ticker: BMO.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 4.35%
  • Dividend Payout Ratio: 26.23%
  • Dividend Yield (12-Month Trailing): 4.08%
  • Upcoming Dividend Date: Nov 28, 2022
  • Market Cap: $84.11 Billion
  • Forward P/E Ratio: 8.78
  • Average Analyst Rating: 2.2 - Buy

Bank of Montreal is the next Canadian bank on our list in terms of size and market capitalization. The bank is the oldest one in Canada, with its founding taking place in 1817.

BMO is positioning itself as an ESG-oriented bank in Canada with a large focus on sustainability and inclusion.

Bank of Montreal is the 8th largest bank in North America by assets, with approximately $1.04 trillion. The bank works with over 12 million clients on a global basis, with 8 million clients being Canadians.

The stock has paid continuous dividends since 1829. This is the longest dividend payout record of any publicly-traded company in Canada (at 193 years)

The bank functions across three operating groups:

  • Personal and commercial banking
  • BMO wealth management
  • BMO capital markets

The bank, similar to its peers, is also listed on the New York Stock Exchange under the ticker BMO.

Darryl White is the current CEO of the Bank of Montreal.

On a forward price-to-earnings ratio basis, BMO is relatively inexpensive when compared to most other Canadian banks. Its forward dividend yield is average when compared to its peers. 

BMO’s US operations represent roughly a third of its revenue and earnings in 2021. The bank’s US operations will continue to remain an important component of future growth for the company.

BMO’s stock is a good potential investment if you are looking for an ESG-focused bank that trades at an inexpensive valuation.

5. Canadian Imperial Bank of Commerce

CIBC Logo
  • Ticker: CM.TO
  • Size: Large Cap
  • Valuation: Value
  • Forward Dividend Yield: 4.98%
  • Dividend Payout Ratio: 43.52%
  • Dividend Yield (12-Month Trailing): 5.09%
  • Upcoming Dividend Date: Oct 28, 2022
  • Market Cap: $55.58 Billion
  • Forward P/E Ratio: 8.2
  • Average Analyst Rating: 2.4 - Buy

The Canadian Imperial Bank of Commerce, or CIBC, is the smallest of the five major banks in Canada. With that said, it is still significantly larger than the 6th largest bank in Canada, National Bank.

The bank was founded in 1867 and is headquartered in Toronto, Ontario. 

CIBC currently has:

  • 11 million clients
  • 45,000 employees
  • Over 3,000 ATMs
  • Over 1,000 branches

The bank is headquartered in Toronto and has four main strategic business units:

  • Canadian business and personal banking
  • Canadian wealth management and commercial banking
  • US wealth management and commercial banking
  • Capital markets

CIBC is also listed on the New York Stock Exchange under the same ticker, CM. This is valuable if you are looking to purchase shares in US dollars. 

Victor Dodig is the current CEO of CIBC and has been in the role since 2014.

CIBC’s forward price-to-earnings ratio is the lowest of the major Canadian banks. Its forward dividend yield is currently very high, falling just behind Scotiabank’s on an annualized basis.

From a size perspective, CIBC’s market capitalization is roughly one-third of RBC’s. When compared to the other major five banks, CIBC also currently has fewer employees and fewer clients. 

CIBC’s lagging position among the major five banks in Canada is one of the reasons why it trades at a more inexpensive valuation.

If you are looking to invest in the smallest and most inexpensive of the major five banks in Canada (that comes with an excellent dividend yield), CIBC stock is a good choice.

6. National Bank of Canada

National Bank of Canada Stock
  • Ticker: NA.TO
  • Size: Large Cap
  • Valuation: Core
  • Forward Dividend Yield: 4.24%
  • Dividend Payout Ratio: 34.60%
  • Dividend Yield (12-Month Trailing): 3.73%
  • Upcoming Dividend Date: Nov 01, 2022
  • Market Cap: $29.64 Billion
  • Forward P/E Ratio: 9.09
  • Average Analyst Rating: 2.7 - Hold

National Bank of Canada, while still a large Canadian bank, is several times smaller than most of the major five banks in Canada (in terms of market capitalization). While it has a smaller presence outside of Quebec, it is the leading bank in Quebec and is headquartered in Montreal.

Within Canada, National Bank offers most of the typical services that the other major banks offer. Internationally, the bank focuses on specialized services.

National Bank has roughly 28,000 employees and total assets of $370 billion as of April 2022. It has roughly 2.7 million clients and approximately 469 branches across Canada.

The bank operates across four business units:

  • Personal and commercial banking
  • Wealth management
  • Financial markets
  • US and international specialty finance

National bank is the only one on our list that is only listed on the Toronto Stock Exchange (and not also listed on the New York Stock Exchange). Investing in National Bank’s stock will require you to buy shares in Canadian dollars.

National Bank trades at a more core valuation relative to the other five major banks. Although its forward price-to-earnings ratio is still fairly low, it trades at relatively higher multiples when looking at price-to-sales and price-to-book ratios.

The bank’s market capitalization is roughly half of CIBC’s and approximately one-sixth of RBC’s. The bank’s forward dividend yield is also currently lower than all of the major five banks in Canada.

National Bank’s stock is a good choice for investors that are less focused on value and income from dividends but more on future potential growth.

Should You Invest in Canadian Bank Stocks?

Within the universe of stocks, some can be more growth-oriented (and therefore riskier) than others. The big Canadian banks are all well-established, dividend-paying businesses that offer a significant portion of their total return through dividends.

Canadian bank stocks are more suited for investors that:

  • Are looking to invest in stocks but have a medium risk tolerance
  • Need income from their investments in the form of dividends
  • Want to invest in well-established, large-cap Canadian names

If you are looking for high-growth ideas and don’t necessarily care about dividends, other stocks may be more suitable for your portfolio. 

The properties of Canadian bank stocks also make them more attractive to an older demographic.

National Bank’s stock is the one Canadian bank stock that has a slightly different investment profile than the major five Canadian banks. It trades at a slight premium because of future potential growth opportunities.

Which Canadian Bank Pays the Highest Dividend?

The dividend yield of Canadian bank stocks fluctuates over time as their share prices move over time.

The forward dividend yield is the most reliable metric for judging the future yield of bank stocks. This metric estimates what dividend yield to expect from a stock going forward, typically on a 12-month basis.

Currently, the Bank of Nova Scotia (Scotiabank) is paying the highest forward dividend yield.

What is the Best Canadian Bank ETF?

Investing in Canadian banks through a Canadian bank ETF can come with a few benefits. These include potential monthly income and automatic rebalancing over time.

The best Canadian bank ETF will likely depend on the features that you are looking for from your strategy. Canadian bank ETFs come with different fees based on how they are constructed and what they offer investors.

If you are looking for a low-cost strategy, BMO’s Equal Weight Banks Index ETF (ZEB.TO) is likely your best option. 

In terms of ETFs with additional features, Hamilton’s Canadian Bank Mean Reversion Index ETF (HCA.TO) or BMO’s Covered Call Canadian Banks ETF (ZWB.TO) are great options.

Make sure to research any Canadian bank ETF thoroughly before adding it to your portfolio.

Conclusion

The big Canadian banks are a great addition to most investor portfolios due to their importance to the economy and the stability of their business. 

Although most of the stocks are very similar in terms of product offering and strategy, the stock prices of the Canadian banks can fluctuate due to market conditions or short-term results (of each individual bank).

Compare each of the big Canadian banks in great detail before making the final decision to invest.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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4 thoughts on “6 Best Canadian Bank Stocks (Oct 2022)”

  1. Which bank(s) have the highest exposure to mortgage defaults if/when real estate investors:/buyers are subjected to rate increases?

    Reply

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