7 best Canadian bank stocks to buy

We analyse the country’s banks and compare growth prospects and current dividend yields

7 best Canadian bank stocks to buy

Read this updated article for the best Canadian bank stocks to invest in for 2023.

Financials have long been a must-have in Canadian portfolios, but when was the last time you assessed the relative strengths of the bank stocks?

In no particular order, we run down the seven main contenders.

1, The Royal Bank of Canada

Ticker: RY

Dividend yield: 3.61

Widely regarded as the number one, RBC is huge; the largest bank in the country and the most powerful. Its reign as the country’s top stock was interrupted by Shopify recently but the bank soon bounced back and regained top spot.

With 17 million clients and operations in 36 countries, the bulk of its AUA is international. Too big too fail? It certainly feels like it. It’s been growing dividends for the past nine years and has the second-highest dividend growth rate among the Big 6 banks. It also grew its top-line revenue year on year despite the pandemic.

2, Bank of Montreal

Ticker: BMO

Dividend yield: 3.61%

The oldest bank in the country – it was founded in 1817 – it’s headquarters remain in Montreal and it has increased dividends for eight consecutive years.

With more than 900 branches and 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.

BMO did get hit hard, however, by the pandemic and has yet to recover its valuation. However, if you consider its history and capital growth over the past 20 years, it has the potential to be 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. 

3, Toronto Dominion Bank

Ticker: TD

Dividend yield: 3.68%

The second-largest bank in the country by market cap and by the number of branches – it has 1,091 in Canada. TD is very close to Royal Bank’s growth rate, with a 10-year growth of about 9.86%. However, if you consider the dividend yield of the two right now, TD might be the better pick.

Also working in its favour is price. At the time of writing it’s less costly than other banks ($87.26) so you get more shares for your investment. It also performs well with total clients, with the most on this list of 26 million worldwide.

Its digital development is also impressive, which has the potential to translate into better dividends and faster capital growth for investors.

4, Bank of Nova Scotia

Ticker: BNS

Dividend yield: 4.54%

Tops the list when it comes to dividend yield and is the third-largest bank in the country by market-cap with more than 950 branches in the country. 

Internationally, most of its revenue comes from Latin America, with the Caribbean and Central America make up about a quarter of its total overseas revenue. The primary reason to invest in the stock is the amazing yield on offer.

It’s been the slowest recovering bank after the March crash, so if you want to lock in a good yield, now might be the time.

5, Canadian Western Bank

Ticker: CWB

Dividend yield: 3.4%

Not usually considered along with the Big Six but worth a mention for its impressive dividend history. The bank has been growing its dividends for 28 consecutive years and 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. The bank’s price history is shaky, and the 10-year CAGR is just 3.48%.

6, Canadian Imperial Bank of Commerce

Ticker: CM

Dividend yield: 4.49%

Not flashy and 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. However, CIBC has always shown resilience and has bounced back well from the market crash.

It’s growth has gone stale but revenues are increasing so a long-term hold could well pay off.

7, National Bank

Ticker: NA

Dividend yield: 3.15%

The smallest of the Big Six but arguably the mightiest. National Bank has been growing for the past two decades. It’s also shown good resilience from the past two crises - in the great financial crisis, it 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. 

It represents a rewarding balance of dividends and capital growth, with a 10-year CAGR (dividend-adjusted) of 12.4%. 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 of last year it had 2.7 million clients, 495 branches, and $565 billion in assets under management.