Blaise Wyant
December 01, 2023
Monthly commentary
Market Commentary, December 1, 2023
Canadian Banks: What’s Not to Like?
Raise your hand if you like everything about your bank?
Well, “everything” might be a stretch, but I can think of a few reasons to like Canadian banks as an investment today.
Historically banks have been good investments when purchased during recessions. In these times banks set aside large sums to prepare for potential loan losses due to weak business conditions and impaired mortgages.
As we progress out of recession and those losses are absorbed or in fact are less than expected then bank earnings are boosted.
CIBC reported its earnings this week. Earnings beat analyst expectations in part because of reduced loan loss provisions. CIBC’s share value responded well.
According to a September 2023 report from Hamilton ETFs the Canadian banks rarely have a 24-month period of negative price performance. When we look at all rolling 24-month periods over the last 20 years (Sep-2003-Aug 2005, Oct 2003-Sep 2005, Nov 2003-Oct 2005 etc. for 20 years) there were negative returns in only 10% of the cases. Each time that happened was followed by a 24-month period of gains over 10% except in one case in March of 2008. October 2023 marked another 24-month period wherein Canadian bank shares were negative performers.
Bank Decline since peak in early 2022 Dividend Yield Forward PE
CIBC 32% 6.43% 8.37
TD 24% 4.97% 10.15
BMO 26% 5.36% 9.54
Royal Bank 19% 4.51% 10.90
Bank of Nova Scotia 35% 7.01% 9.25
Yields/rates are as of December 1, 2023
Bank dividends have been paid consistently for more than a century. In fact, banks regularly raise their dividends as we saw CIBC do this week.
Dividend.com lists the five longest consistent dividend paying stocks in Canada as follows:
Name Dividend paid since
BMO 1829
Bank of Nova Scotia 1832
TD Bank 1857
CIBC 1868
Royal Bank 1870
Sports analogies are often used in the investment world and here is one more. Long term success in Baseball is based on doing a lot of little things that are proven to work over a large sample size. Moving the runner from second to third with less than 2 outs does not guarantee a run but it works more often than not. Buying Canadian banks with average yields over 5 %, price earnings multiples of ten or less and big discounts to a peak 2 years ago has paid off in the past more often than not. That is something to like about your bank.