Now there’s a headline. That headline might grab your attention and perhaps your investor wallet. I’ll leave that up to you. According to Scotia Capital analyst Hugo Ste-Marie the Canadian banks now trade at 10.5 times forward earnings, versus 18.7 times for the broader TSX. When you buy the Canadian banks (compared to market) you receive a very generous dividend yield, more current earnings and the prospect of greater forward earnings. This is the cheapest Canadian banks have been in 20 years.
Is it time for the big Canadian banks?
I kept a close eye on the banks last week; the big Canadian banks all reported earnings. Of course we are now getting a clearer picture of the Canadian economic recovery and the activity and health of the Canadian consumer. You can find my brief summary in my weekly MoneySense column – Making sense of the markets this week.
Most of the banks beat earnings expectations. Scotiabank faces the greater challenges. Royal Bank of Canada once again showed why it is often called the best run bank in Canada. RBC delivered a 12% year over year revenue increase – during a pandemic.
As I asked on Twitter …
How dey do dat?
Me
And certainly it’s not all rosy out there. The risks are great. But there are positive signs, some green shoots as economists like to call them.
From this Globe and Mail article courtesy of Tim Shufelt …
But most of the banks managed to easily beat Bay Street earnings forecasts, in what Scotia Capital strategist Hugo Ste-Marie called a “big step forward.”
“The environment certainly remains challenging, but the sector appears well positioned to do some catch-up,” Mr. Ste-Marie wrote.
He pointed to improvements in the Canadian labour market, a modest increase in bond yields, which tend to boost bank profits, generous dividend yields, and the lowest relative valuations in 20 years.
Hugo Ste-Marie in the Globe
The Belski bump for the TSX.
In that same article it was reported that BMO’s Brian Belski upped his TSX benchmark target to 18,200. Mr. Belski feels the Canadian banks will participate in driving the index higher. If so, this is obviously good news for most Canadian investors whether they hold the banks in an ETF Portfolio or mutual fund or by way of individual stocks.
For the record I hold the big 3 – RBC, TD and Scotiabank. In my wife’s accounts she’ll have bank exposure by way of the TSX 60 ETF, ticker XIU and Vanguard’s Canadian High Dividend Yield – VDY.
Being in a state of semi-retirement or whatever the heck this is, I am happy to simply collect the dividends from the big banks. I’d be happy if they simply held their dividends. I’ll get my capital appreciation from my market-beating US stocks. But of course I certainly hope that the big banks will eventually continue with their long term beat of ‘the market’.
As I reported in the MoneySense piece, all of the Canadian banks announced dividend payments that held the fort (no cuts) …
Keep in mind this is not investment advice. I have no idea what will happen with Canadian banks. I like ’em. The big Canadian banks have been paying dividends for longer than Canada has been Canada.
That’s a little different history compared to Canadian energy dividends.
Do your own research. As we say on Seeking Alpha – Read. Decide. Invest.
More Weekend Reads.
Well if we’re looking for some good news in the oil patch.
Oil production to fall in the US, picked up by oil production from Canada. Under its most aggressive growth scenario, CERI projects oil sands supply will grow from 3.1 million bpd to reach 4.7 million bpd in 2039. Under its slowest growth scenario, the think-tank expects oilsands supply will peak at 4.3 million bpd by 2039.
That might provide some support for Canadian energy stocks and those pipelines.
And yes of course we’re all looking for and hoping for a greener future.
BAM taps Carney.
And on greener pastures, Brookfield Asset Management (BAM) tapped into the more than well-connected Mark Carney to steer their environmental and social investing efforts. I’ll leave it to you to connect Mark’s government pals in Europe and Canada and the new world order.
And on MoneySense here’s Jonathan Chevreau, a very good post on investing in 5G technology. Of course we are in the early stages of the next leap ‘forward’.
On My Own Advisor Mark Seed answers – should you only put 5% down on your mortgage and invest the rest?
On findependence hub John DeGoey suggests that we should not be smug about market returns. We have the battle of don’t fight the Fed, and don’t fight the Fad. The Feds are supporting the markets, many are chasing the same stocks.
And on MillionDollarJourney – EI Benefits for the self employed. Hmmm, should I be looking into that?
TD joins the one ticket world.
I have a review ready to go on these new asset allocation ETF portfolios.
TD calls them the ‘one-click’ portfolios. Love it! They are very good portfolios as well, going off script. And speaking of off script I have finished my post for Horizons one ticket offerings. Did you know they are Canada’s best performing one ticket option? Of course you didn’t know, I didn’t post yet.
Those two one ticket (click) posts are coming soon to Cut The Crap Investing.
Mike The Dividend Guy looks at the REIT sector and Brookfield Property Partners. Should your shares be running this bumpy ride?
On lowestrates.ca Canadian mortgage rates and housing trends.
And of course always read Mauldin Economics.
I said we are entering a Depression-like period for much of the economy. But I still think we’ll make it through.
Financial markets are strong in part due to confidence we will have effective COVID-19 treatments and/or vaccines soon. These, it is thought, will restore consumer confidence and enable swift economic recovery. I sincerely hope so, but results will take time—even if they work perfectly.
That’s my outlook in a nutshell: We’ll be okay, but we’ll have problems first.
– John Mauldin
Well said.
Thanks for reading. Have a great day and a great week.
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Dale
Excellent article, Dale. As you no doubt know, I am not a fan of dividend investing. I subscribe to the theory that dividends are irrelevant. Having said that, I own two dividend-focused ETFs (I bought them perhaps against my better judgement), only because they belong to iShares’ Core Portfolio, XDU and XDIV. The latter is quite bank-heavy. I was thinking of buying more long-term bonds with my next dividend cheque. Hmm, maybe I’ll buy more XDIV. You’re article gives me something to think about.
Damn spellcheck. I meant “your article.”
Of course no one knows what will happen, but with any strategy we do need to give it lots of time.
Dale
I wonder about our banks, and what the competition from fintech and other wealth management options ???
I wonder about our banks, and what the competition from fintech and other wealth management options will do to their future earnings? Could this be why we are seeing them become laggards?
I will do an update post. From this date, the returns of the banks has more than doubled the returns of the TSX Composite.
Incredible. Thanks to BMO for the charts and calculations.
Dale