Canadian Banks Ranking – Which One Of The Strongest Bank?

Canadian banks are amazing; they have outperformed the Canadian market for the past 5, 10, 15, probably 25 years. Unfortunately, they were not created equal. That’s a myth.

Technically, if you take any of the first six, you’ll do well. But what if I tell you that Scotiabank (BNS/BNS.TO) gave you a 60% total return over the past 10 years while National Bank (NA.TO) has provided you with 250% overall return? Do you really think that both are equally weighted in your portfolio? It would be like telling me, “Mike, if you invest in any tech stocks, you’ll do fine.” That’s not true. Some tech stocks are good, some are average, and some are just crap.

So here’s my Canadian banks ranking – from number six to one – for the next 20 years. Let me tell you upfront: Laurentian Bank and Canadian Western Bank are not part of the list. The investment thesis for each says it all.

Laurentian Bank (LB/LB.TO) Investment Thesis (OTC: LRCDF)

If you are looking for an overlooked bank with chances of PE expansion, LB could be your candidate. This small bank is trading at a lower PE than its peers (there are reasons why) and pays a solid dividend yield to keep you waiting patiently. Personally, I dislike this bank as it lacks growth vectors due to its small size and lack of presence in the wealth management market. The problem is that LB lacks long term vision. The bank keeps changing its strategies (opening branches to close them 5 years later) and is slowed down by union. During the pandemic, LB is the only bank to have cut its dividend. Do you need another reason to sell?

Canadian Western Bank (CWB/CWB.TO) Investment Thesis (OTC: CBWBF)

The whole idea to invest in CWB is to enjoy Alberta’s oilsands potential. CWB is a classic “savings & loans” bank that is well established in Western Canada… where the money is. Unfortunately, this investment thesis is not as solid as it seems. With the energy market being completely destroyed, CWB will be stuck in a very difficult situation for many years. I find CWB pricey (using the DDM) compared to the Big 5. Also, CWB isn’t the most generous with its dividend yield and we believe there are better opportunities in this sector. Royal and TD should be on your list before CWB.

Enough said for these two.

6. Canadian Imperial Bank – CIBC (CM/CM.TO)

CIBC operates through three segments: Retail and Business Banking, Wealth Management and Capital Markets. Still, it’s a classic savings and loan bank. If you want my full analysis including the last quarter’s review, it is available on that previous article.

Pros:

  • High yield with a relatively low payout ratio: When you do the math, a low stock price brings a higher yield. A low PE ratio also brings a high yield and so the stock price is low…
  • Mortgage loans: The mortgage side is doing well as housing market in Canada is doing well. But when your biggest growth vector is mortgages right now, I don’t think it will result in outperforming the other banks.
  • Private banking and wealth management: Smart move, but a little late. CIBC is a small player in this ground compared to the others.
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