I read an interesting article the other day on the strength of Canadian financial institutions. Canada's banks dominate the rankings of the world's strongest banks. The weakness in U.S. housing and banking markets allowed our neighbors to the north to pick up assets on the cheap, and they are now starting to use the European crisis to acquire strategic assets at bargain prices over there.
Canadian banks have strong capital levels, a conservative lending culture and strict regulatory oversight. They also have two other traits that are sorely lacking in financial stocks in the U.S.: dividend yield and dividend growth. Here are three Canadian banks income orientated investors should considered for investment.
Canadian Imperial Bank of Commerce (CM) has 1,100 branches throughout the country and is headquartered in Toronto. It also recently acquired a minority interest in American Century Investments.
Four reasons CIBC is a solid value at $74 a share:
- The stock provides a 4.9% dividend yield, and the company has an A+ credit rating. It also only had to cut its dividend slightly during the financial crisis and has more than quadrupled dividend payouts over the past 15 years.
- It has a five-year projected PEG of under 1 (0.95), which is unusual for a high yielder, let alone a bank.
- The stock is selling for less than 9x earnings and has had an ROE of over 20% for the past two years.
- The median analysts' price target on CIBC is $87 a share. Standard & Poor's is at $85 a share.
Toronto-Dominion Bank (TD) has 1,150 branches throughout the country and has been one of the most active acquirers in the U.S. market. It latest acquisition was Chrysler Financial Corporation, which it picked up for $6.4 billion.
Four reasons TD makes sense for growth and income investors at $82 a share:
- The stock has a 3.5% yield, has raised its dividend around 50% since the end of the financial crisis and its balance sheet is rated AA-.
- It has easily beat earnings estimates in the last three quarters, and consensus estimates for both fiscal 2012 and 2013 have ticked up over the last two months.
- Analysts expect solid revenue growth of 7% to 8% for both fiscal 2012 and 2013. It also has a reasonable five-year projected PEG (1.16) for a 3.5% yielder.
- The stock goes for just over 10x forward earnings, and it more than doubled net income from fiscal 2009 to 2011.
Bank of Montreal (BMO) provides various retail banking, wealth management and investment banking products and services in North America and internationally. It has 1,600 branches throughout North America.
Four reasons Bank of Montreal is a good long-term bargain at $58 a share:
- The stock has a 4.9% dividend yield, has an A+ rating on its balance sheet and has raised its payout by approximately 40% since early 2009.
- Analysts expect the company to grow revenue by over 13% in fiscal 2012 and north of 5% in 2013.
- The stock is selling for just over 9x projected 2013 earnings and has a reasonable five-year projected PEG (1.27) for a stock almost yielding 5%.
- The median analysts' price target on Bank of Montreal is $67 a share, and Standard & Poor's has the shares rated a Buy.