The Best Canadian Banks to Invest in have proven they can weather economic downturns

The best Canadian banks to invest in have a history of stability and paying dividends

On the whole, the best Canadian banks to invest in trade—as they do today—at attractive share prices. Because they are growing, yet cheaper in many respects than other stocks, they give conservative Canadian investors a near-ideal combination of pluses: above-average dividend yields and track records; low to moderate per-share price-to-earnings ratios; and above-average long-term capital gains.

That’s why we’ve continually recommended buying Canada’s top five bank stocks since the 1970s. It’s also why that advice has paid off so nicely.

True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.

 The best Canadian banks to invest in will likely continue to remain attractive

 Of course, the banks have gone through periodic and sometimes lengthy slumps, like any other stock group. They occasionally make costly management errors. On rare occasions, they have suffered from adverse regulatory decisions. But because they have grown and have generally been available at highly attractive prices, they’ve provided well-above-average investment returns for decades.

That performance is likely to continue in the coming decades, in our view.

Recently, though, investors have begun to worry about the banks once again. Investors wonder if the banks will get caught unawares when if interest rates continue their upward move. Our view is that the banks had a long time to prepare for the inevitable further rise in interest rates.

 The best Canadian banks to invest in already pay dividends

 Canadian bank stocks have long been one of our top choices for growth and income, and we recommend that most Canadian investors should own two or more of the Big Five Canadian bank stocks —Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s in large part because of their importance to Canada’s economy.

Canadian banks stocks have been some of the best income-producing securities. Here are three tips for using dividends as a barometer for picking Canadian bank stocks.


  1. Bank stock dividends are a sign of investment quality. Some good banks reinvest a major part of their profits instead of paying dividends. But failing banks hardly ever pay dividends. So if you only buy bank stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst banks.


  1. Bank stock dividends can grow. Stock prices rise and fall, so capital losses may follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But banks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation.

 For a true measure of stability, focus on banks that have maintained or raised their dividends during economic and stock market downturns. These banks leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth. Canadian bank stocks are well-known for their financial stability in the face of economic downturns.


  1. Look for Canadian bank stocks with consistent dividends. A history of dividend payments is one trait that all the best bank dividend stocks have. One of the best ways of picking a quality stock is to look for banks that have been paying dividends for at least 5 to 10 years.

 The best Canadian banks to invest in offer more stability than many other investment options

Pessimists can find a lot to criticize in Canada’s financial regulatory regime. Some feel it favours the big banks, and that’s probably accurate. But it gives us a much more secure and workable financial environment than you’ll find in most major countries, particularly our neighbour to the south.

Use our Successful Investor approach when investing in Canadian banks or any other type of stocks

One key part of our three-part investing program is to diversify—spread your money out across most, if not all, of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities. Diversifying your stocks across the five sectors is more than just a safeguard: it will significantly improve your chances of making money.

The other two parts of the Successful Investor approach recommend investing mainly in well-established, dividend-paying companies, with a history of rising sales if not earnings and dividends, and downplaying or avoiding stocks in the broker/media limelight. When stocks spend time in the limelight, they tend to become overpriced, and this leaves them vulnerable to a sharp downturn on any hint of bad news. Instead, look for stocks with hidden value that are less widely recognized as attractive investments.

 There have been controversies surrounding the big five Canadian banks, including stories of employees who have felt pressured to upsell customers in order to meet sales goals. How has that affected your investment interest?

Which, if any, Canadian banks other than the Big Five do you find to be attractive investments?


  • ronald

    I find NA to be a good bank as they raise the dividend twice a year. I am a buy and hold investor and since I have held NA it has raised it’s dividend twice a year and split in either ’13 or ’14 so I have twice as many shares. The base cost was just under eleven thousand and I now receive fifty two hundred annually. So the buy and hold formula seems to be paying off.

    • Thanks for the comment. I assume by NA you mean National Bank. To add to your words we would remind our readers that Canadian bank stocks have long been one of our top choices for growth and income, and we recommend that most Canadian investors should own two or more of the Big Five Canadian bank stocks — Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s in large part because of their importance to Canada’s economy.

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