May 20, 2022

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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