Why Investing in the Big Canadian Banks can be lucrative

Dear PGM Blog reader,

In this weekend blog article, we want to take the opportunity to discuss with you, why Investing in the big Canadian Banks, can be lucrative for value investors.

INTRODUCTION:

Big Five is the name colloquially given to the five largest banks that dominate the banking industry of Canada: Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), and Toronto-Dominion Bank (TD).

All of the five banks are operationally based in Toronto. All five banks are classified as Schedule I banks that are domestic banks operating in Canada under government charter. The banks’ shares are widely held, with any entity allowed to hold a maximum of twenty percent.

According to a ranking produced by Standard & Poor’s, in 2017, the Big Five are among the world’s 100 largest banks, with Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce at 26th, 28th, 45th, 52nd and 63rd place, respectively.

In this article we will elaborate further on the top three largest banks in Canada; Toronto-Dominion Bank (TD.TO), Royal Bank of Canada (RY.TO) and Bank of Nova Scotia (BNS.TO).

TORONTO DOMINION BANK:

The Toronto-Dominion Bank is a Canadian multinational banking and financial services corporation headquartered in Toronto, Ontario. Commonly known as TD and operating as TD Bank Group, the bank was created on February 1, 1955 through the merger of the Bank of Toronto and The Dominion Bank, which were founded in 1855 and 1869, respectively.

TD Bank Group is the largest bank in Canada by total assets and a top-10 bank in North America. Globally, it ranks as the 26th largest bank in the world, according to Standard & Poor’s.

The bank and its subsidiaries have over 85,000 employees and over 22 million clients worldwide.

Shares of the company, which are publicly traded on the TSX under the symbol TD and as well as on the NYSE as an ADR. are a component of the S&P/TSX 60 Index is a stock market index.

Below chart shows the performance of the shares of the company form January 1995 up to close of the market on Friday, December 1, 2017.

ROYAL BANK OF CANADA:

The Royal Bank of Canada is a Canadian multinational financial services company and the second largest bank in Canada. The bank serves over 16 million clients and has 80,000 employees worldwide. The company corporate headquarters are located in Montreal, Quebec. The bank was founded in 1864 in Halifax, Nova Scotia.

RBC is the largest Canadian company by revenue and market capitalization, its shares are publicly traded on the TSX under the symbol RY and as well as on the NYSE as an ADR. and it is a component of the S&P/TSX 60 Index is a stock market index.

Below chart shows the performance of the shares of the company form January 1995 up to close of the market on Friday, December 1, 2017.

BANK OF NOVA SCOTIA:

The Bank of Nova Scotia, operating as Scotiabank, is a Canadian multinational bank. It is the third largest bank in Canada by deposits and market capitalization.

The bank and its subsidiaries have over 89,000 employees and serves more than 23 million customers in over 55 countries around the world.

Scotiabank offers a range of products and services including personal and commercial banking, wealth management, corporate and investment banking.

The bank was founded in Halifax, Nova Scotia, in 1832, and moved its executive offices to Toronto, Ontario, in 1900.

Shares of the company, which are publicly traded on the TSX under the symbol BNS and as well as on the NYSE as an ADR. are a component of the S&P/TSX 60 Index is a stock market index.

Below chart shows the performance of the shares of the company form January 1995 up to close of the market on Friday, December 1, 2017.

PGM CAPITAL COMMENTS & ANALYSIS:

The Canadian top five Banks are recognized internationally for their financial strength. They tend to each feature prominently in global rankings by respected publications. The World Economic Forum has, for example, ranked the soundness of Canadian Banks in first place globally for the seventh consecutive year in its 2015-2016 report, citing the general health and sound balance sheets overall.

Below spreadsheet in descending order of their current market capitalization, we will compare the big three Canadian banks by their market capitalization, dividend yield and P/E ratio.

BANK Market Capitalization [USD] P/E Ratio Dividend Yield [%]
Royal Bank of Canada ~118 billion 13.92 3.61
Toronto Dominion Bank ~108 billion 13.30 3.20
Bank of Nova Scotia ~79 billion 12.78 3.81

Below chart compares the performance of the shares of the above mention big three Canadian Bank from January 1st 1995 up to Friday, December 1, 2017.

Based on their fundamentals and performance of their shares we have a BUY rating on the shares of all three.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that the market can remain irrational longer, than you can stay solvent.

Yours sincerely,

Eric Panneflek

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