The three Canadian Bank Stocks Worthy of Your TFSA

Canadian bank stocks are great additions to any long-term-focused TFSA (Tax-Free Savings Account). While there hasn’t been much in the best way of capital gains over the past five years, the magnitude of dividend growth has been respectable.

Although bank stocks are inclined to feel the complete force of those inevitable market plunges, it’s price noting that over a longer-term timespan, such bumps within the road are inclined to be smoothed out. Even the worst plunges prior to now (think the Great Financial Crisis) weren’t in a position to keep the highest Canadian bank stocks down for too long a duration.

Without further ado, let’s have a have a look at three Canadian bank stocks which are finally price a re-examination after they slipped a bit within the back half of last 12 months. Consider TD Bank (TSX:TD), Scotiabank (TSX:BNS), and Bank of Montreal (TSX:BMO), three bank stocks I view as the highest three of the Big Six at this juncture.

TD Bank

Sailing right into a recession isn’t easy, as provisions for credit losses (PCLs) and other issues take a toll on bank earnings. TD has been through its fair proportion of economic downturns, rising out of the gutter each time, and with its dividend in a single piece.

Undoubtedly, it’s hard to gauge just how bad a coming recession can get. January’s market bounce looked as if it would suggest the recession shall be milder in nature. Mild, medium, or hot, though, I feel TD Bank stock is an important pick-up, while TFSA investors fret the top- and bottom-line pressures to come back.

Amid the turbulence, TD made good use of its dry powder, acquiring First Horizons Bank, and, more recently, Cowen, at prices that were quite reasonable!

Indeed, TD was in a spot to make a deal for a number of years now. Arguably, the bank could come out of this era of volatility on stronger footing, due to prudent moves at a time when valuations are pretty compelling.

TD stock trades at 9.8 times trailing price to earnings (P/E), with a 4.14% dividend yield. That’s too low cost for such a proven bank.

Scotiabank

Scotiabank is a riskier bank stock, but one with greater potential rewards. Not only is Scotiabank a “low cost” name after losing greater than 30% of its value from peak to trough, but it surely also provides TFSA investors with a strategy to geographically diversify their portfolios into emerging markets that can assist jolt longer-term returns potential.

Investing internationally comes with its own slate of risks. Fortunately, I’m an enormous believer in Scotiabank’s managers. They will mitigate such risks much better than many expect. For that reason, I’d strongly encourage latest investors to examine out BNS stock at these depths in the event that they seek domestic and international exposure in a single package.

At 9.16 times trailing P/E, with a 5.6% yield, BNS stock is considered one of the cheaper and more bountiful plays of the Big Six Canadian bank stocks without delay.

Bank of Montreal

Bank of Montreal is the most affordable name on the list from a trailing P/E perspective. At writing, shares go for six.7 times trailing P/E. The stock’s down just north of 11% from its all-time high, so the low P/E isn’t just the results of excessive selling.

BMO’s earnings have held up quite well. Though recession headwinds could weigh on growth through 2023, I proceed to view BMO more favourably than its peers. Like TD, BMO has a U.S. acquisition (Bank of the West) that can keep it busy and help propel growth on the opposite side of a downturn.

Finally, I like management rather a lot. BMO might not be a behemoth within the banking scene, but it surely actually appears to be going for growth. That alone must have the eye of long-term TFSA investors.

Which bank stock is most fit for a TFSA?

I’d buy all three, but when I had to decide on one, it’d should be BMO. The stock is affordable, and I believe most undervalue the firm’s U.S. expansion.

The post The three Canadian Bank Stocks Worthy of Your TFSA appeared first on The Motley Idiot Canada.

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More reading

• Higher RRSP Buy: Suncor Stock or TD Bank?
• 3 Canadian Dividend Stocks Paying Big Income in a Bearish Market
• 2 Growth Stocks That Also Offer Incredible Dividends
• 3 Low cost Canadian Stocks With P/E Ratios of Less Than 10X
• I Keep Buying Shares of This Dividend Stock Hand Over Fist

Idiot contributor Joey Frenette has positions in Bank Of Montreal and Toronto-Dominion Bank. The Motley Idiot recommends Bank Of Nova Scotia. The Motley Idiot has a disclosure policy.