7 Best Canadian Bank Stocks for Stability and Dividends (2021)

After the 2008 recession, safety and stability are not the terms people always associate with banks. 

Banking institutions lost a lot of investor trust, and with the rapid rise of digital banking, traditional banks are also not as mightily profitable as they used to be. 

This is another place where Canadians have won the geographic lottery. Two Canadian banks are included in World Finance’s three best banks lists, and the big five are also the top five safest banks in North America. 

And the best part, this safety and stability also come with generous dividends and modest growth. Do your investment portfolio a favor, and pick some winners from this list of best Canadian bank stocks.

Best Canadian Bank Stocks

Before we “unveil” the list (like you haven’t scrolled down and read it yet), one thing requires clarification. For this list, we’ve only chosen “Bank stocks,” and that doesn’t include financial services and mortgage lenders, many of which are classified under the same category in several screeners. 

It made the total pool of available securities relatively limited (since there are only a handful of sizeable and publically traded banks in the country). But that’s not necessarily a bad thing. You have fewer securities to screen and judge by your own metrics.

Also, as some of you probably know what the big five are. These are the banks that control over 80% of the banking industry in Canada (an estimate, some people place the actual percentage even higher). 

Sometimes, the term is changed to the “big-six” to include the National bank of Canada. Also, three of the big five banks are among the ten most massive securities trading on the TSX (by market cap). It used to be four, but a recent hike in gold prices has pushed stocks up the ladder and displaced the fourth bank to the eleventh position.

Best Canadian Bank Stocks Infographic

1. National Bank of Canada Stock

National Bank of Canada

Ticker: NA
Dividend Yield: 3.15%
Market Cap: $30.66 billion

Even though it’s the smallest in the big-six bunch, the National Bank of Canada is easily one of the best Canadian bank stocks there is. It has been growing quite consistently for the past two decades, and despite its local focus (especially compared to some of Canada’s more internationally focused banks), the bank has shown amazing resilience and recovery potential. 

In the great recession, the bank lost about 50% of its valuation by December 2008, but it recovered and grew to its pre-recession valuation before 2010 was over. The recent 2020 drop was almost as brutal, and the stock lost about 48% of its value. It hasn’t fully recovered yet, but it’s quite close. 

National Bank of Canada is also a dividend aristocrat and has increased its dividends for ten consecutive years. It’s offering a decent 4.1% yield right now, though if you get a chance to buy into the company during a market crash, you’d be able to lock in a significantly better yield. 

The reason I chose National bank as number one on this list is the rewarding balance of dividends and capital growth it offers. Its ten-year CAGR (dividend-adjusted) is 12.4%, which is not that far off from the second bank on this list, but when you are holding a security for a very long time, even one percent can make a huge difference. And 12.4% is a powerful growth rate. 

If you invest $10,000 in the company when you are 30 and let it grow at 12.4% a year, you might have about half a million in this company by the time you retire at 65. As per last year’s report, the bank had 2.7 million clients, 495 branches, and $565 billion in assets under management. The bank generates most of its revenue in the province of Quebec (55%). Rest comes from other provinces (26%) and from international business (19%).  

2. Royal Bank of Canada Stock

rbc bank logo

Ticker: RY
Dividend Yield: 3.61%
Market Cap: $171.27 billion

The name Royal Bank of Canada doesn’t look ostentatious for this particular security. It’s practically the king: The largest company on the TSX (by market cap), the largest bank in the country, and the most powerful financial institution. And even though its reign was recently challenged and it was dethroned from the top spot by Shopify, it didn’t last long.

The Royal bank is simply massive. It has 85,000+ employees. That’s about 0.5% of the total Canadian workforce, but it also includes international employees. It also has 17 million clients and is operating in 36 countries. Its international presence is quite substantial, and as of 2019, less than half of the assets under the bank’s administration (AUA) are in the country, and only about 10% are in the US. The bulk of its AUA is international.

Its diversification (both geographically and revenue sources) ensures that the bank is both stable and growing. It’s one of those institutions that are really too big to fail. The bank has been growing its dividends for nine consecutive years, and based on its payouts in the past five years, has the second-highest dividend growth rate among the big-six banks.

But perhaps the best reason to invest in this bank is its consistency of growth. Its 10-year CAGR about 10.7% (dividend-adjusted), and if the recent market crash hadn’t thrown many numbers in disarray, the rate would have remained consistent or grown. 

Still, it’s enough to convert your $10,000 into about $350,000 in 35 years. And even though everything is going digital, the Royal Bank can claim the largest national footprint based on the number of branches (1,200+). It’s also enhancing its digital banking platform and introducing several amazing investment products like ETFs and other funds that you can invest in. 

3. Toronto Dominion Bank Stock

Ticker: TD
Dividend Yield: 3.68%
Market Cap: $156.06 billion

If the Royal Bank of Canada is the “king,” then TD is definitely the prince. It’s the second-largest bank by market cap and by the number of branches (1,091 in Canada). TD is also very close to Royal Bank’s growth rate, with a 10-year CAGR of about 9.86%. Though, if you consider the dividend yield of the two right now, TD might be the better pick. 

Another advantage that TD has over other banks on this list is its dividend growth rate. Its 25-year dividend CAGR is about 11.3%. And since its stock is also less costly than other banks ($64.5 per share at the time of writing this), you will get more shares for the same amount of investment, and a higher dividend growth rate would ensure that payout increases benefit you more.

TD can also be considered the most American bank on this list. In 2019, about two-thirds of its premium retail earnings came from the US. Its footprint is not as extensive globally as Royal Bank’s is, but in North America, TD can go toe-to-toe with its big brother. It’s the fifth-largest bank in North America (by branches) with over 2,300 locations in total. Its digital footprint is also impressive: 13 million users and growing.

In the total number of clients, it outshines almost all other banks on this list since it serves over 26 million people across the world. TD’s digital front is a very notable feature since it’s the next frontier in banking, and if TD is taking the lead in this, the chances are that it might be able to grow its business at a much faster rate than other banks in the country. That might translate into better dividends and faster capital growth and benefit its investors.

4. Canadian Imperial Bank of Commerce Stock

Canadian Imperial Bank of Commerce

Ticker: CM
Dividend Yield: 4.49%
Market Cap: $58.42 billion

The Canadian Imperial Bank of Commerce came into being in 1961, thanks to the historic merger of the Canadian Bank of Commerce and the Imperial Bank of Canada (hence the “aristocratic” name). It also has the pleasure of being the most expensive of the bunch (by share price, not valuation). Its capital growth prospects are not as high as the others, especially those higher on this list, but it has always offered a generous yield compared to others. Its dividend-adjusted 10-year CAGR is 8.3%, which might not result in a very sizeable nest egg. 

But if you can invest a sizeable sum in this bank stock now, you’d be able to lock in a very juicy yield. And since it has also been a dividend aristocrat for nine years, the bank is highly unlikely to slash its yield in the future. Most of the bank’s revenues are generated in-house. In 2019, only about 13% of the revenue came from the US commercial banking and wealth management market. 

One of the noteworthy things about this bank is its resilience. Despite not being a good growth stock in the past, CIBC showed one of the best recoveries in the industry after the market crash. Recently, its growth has been a bit stale, and it might stay that way for a few more years till the economy and stock market both properly recover from the pandemic’s devastation. 

But if you are willing to hold on to the security for a long time, it might outperform many of the flashier (but unstable) growth stocks you might want to invest in.  Its balance sheet is stable but not very strong, but the bank has been increasing its revenues steadily for the last five years. This means even if the stock’s performance is not mimicking it, the institution is actually improving its returns. 

5. Bank of Montreal Stock

Ticker: BMO
Dividend Yield: 3.61%
Market Cap: $63.93 billion

Despite being near the end, BMO is the senior-most bank on this list. It was founded in 1817, making it the oldest bank not just among the big-five, but in the country. As the name suggests, it was founded in Montreal, and to this day, the bank has stayed true to its roots, and its headquarter is still in Montreal. It’s also an aristocrat and has increased its dividends for eight consecutive years. 

But its dividend history stretches back way farther in history. The bank has been paying dividends for 191 years. 

The bank has quite a decent national foot-print, with over 900 branches. With over $852 billion in assets under management, it’s the eighth-largest bank in North America when it comes to assets and has over 12 million customers worldwide.

If we discard the market crash and what it did to the bank’s valuation, from which it hasn’t recovered yet, its ten-year CAGR might rival that of the TD, but since it hasn’t been able to recover from the crash adequately, we’ve placed it fifth on the list. 

The dividend yield isn’t particularly impressive, but if you consider its capital growth history in the past two decades (and the bank can replicate it), it has the potential of being a great long-term holding. The bulk of the company’s revenue is generated within the country (58% in 2019), with the US coming in second place (34%). Only 9% of the bank’s revenues came from its international business. 

Its balance sheet is strong. Its annual revenue growth is impressive, and the bank managed to maintain a pretty steady net income margin for the last five years. Right now, the stock might be considered discounted, but if you want to buy it, a better time would be another dip. That way, you’d be able to lock in a better dividend yield. 

6. Bank of Nova Scotia Stock

bank of nova scotia

Ticker: BNS
Dividend Yield: 4.54%
Market Cap: $96.38 billion

If we had arranged this list by the dividend yield the banks are offering, Bank of Nova Scotia would have topped the list. It’s the third-largest bank in the country (by market-cap) and has over 950 branches in the country. 

It serves about 11 million retail, commercial banking, and small business customers in the country. Impressively enough, the bank is offering services to just as many international customers. It has branches outside of Canada than inside (1,900), almost double the domestic footprint.

Outside Canada, the bank generates most of its revenues in Latin America (more than two-thirds of its total international revenue). The Caribbean and Central America make up about one-fourth of the total international revenue, and the rest comes from Asia. 

This impressive global footprint doesn’t help its investors with their capital growth prospects much, and the primary reason to invest in that stock would be the amazing yield its offering right now. 

It has also, unfortunately, been the slowest recovering bank after the March crash. If you want to lock in a good yield, the time might be ripe because once it recovers, the yield would shrink, and to make up for the pandemic-driven losses, the next year’s payout “growth” might not be very generous.

7. Canadian Western Bank

Canadian Western Bank

Ticker: CWB
Dividend Yield: 3.4%
Market Cap: $2.94 billion

Canadian Western Bank is what you might call a tier-2 bank, but that’s not a very apt term since most banks out of the big-five are considered tier-2. The main reason it’s on this list of the best Canadian Bank stocks is its impressive dividend history. 

It has been growing its dividends for 28 consecutive years and is the oldest aristocrat in the financial sector. It has a history long enough to be considered a dividend aristocrat across the border as well. The yield is decent, and the payout ratio is very secure, but that’s about it. Its share price history is shaky, and the 10-year CAGR is just 3.48%.

The bank operates primarily inside the country, and almost two-thirds of its business (loans) comes from BC and Alberta. The bank does more business with commercial clients than it does with retail customers. Thankfully, oil and gas don’t make up much of its loan portfolio because that’s one area where the bank would probably pick up the most losses in the coming years.

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Conclusion

We hope that you found the list helpful. Remember, deciding what not to invest in is just as important as figuring out what you want to invest in. Canadian banking stocks are safe, dividend-friendly, and most of them are great for long-term holding. With that in mind, choose the superstar bank for your portfolio. 

Best Canadian Bank Stocks

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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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