Berkshire Hathaway run by Warren Buffet is betting big on banks right now, especially on Bank of America (BAC). Regulators have recently approved Berkshire to acquire up to 25% of Bank of America. Since then Berkshire has spent 2.1 billion for 85.2 Million shares bringing their current holdings of BAC to 11.9%. Bank of America (BAC) has a share price of $26.47, market cap of $229.34 Billion, 52 week range of $17.95-$35.72, EPS $2.081, P/E Ratio of 12.72, Dividend of $0.72, and a dividend yield of 2.72%.
Recently I have been pursuing a similar strategy of investing in banks with one small difference. Instead of betting on American banks I have been largely investing in Canadian banks (Scotiabank and Bank of Montreal to be specific). Canadian banks tend to be more strictly regulated than American banks which tends to lead to them having less risky lending strategies than American banks do. Generally this means that they usually have larger cash reserves and less defaults than American banks during market slow downs. The downside being that they cannot increase their income quite as quickly due to their more rigid lending practices.
Pretty much all North American bank stocks have been hit pretty heavily by coronavirus due largely to mortgage payment deferrals helping people who have lost hours at work or even worse lost their jobs. This seems like a poor plan by the banks in the short term, but really helps the banks increase their income in the long term. While a lot of banks are not charging interest on these deferred payments, some banks are still adding on the interest payments while the payments are not being made increasing the amount a person will need to payback once they are employed again. Payment deferrals also help the banks to reduce the number of delinquencies on people’s debt, which will also increase their income long term (Delinquencies typically amount to a bank receiving pennies on the dollar for money owed).
Because I am a Canadian investor and largely using my TFSA to invest buying into Canadian banks vs American banks is a more attractive proposition. Canadian banks are largely paying over 5% dividend yields right now while the American banks tend to be closer to 2 or 3%. I am also able to avoid the 15% US dividend tax that is taken off all US dividends when investing with a TFSA. This increases the dividend amount received significantly for me and allows me to avoid the fees on the CAD to USD exchange rate as well. The last factor that leans me towards Canadian banks right now is that even after last weeks and this weeks market strength the majority of Canadian banks are still significantly off of their 52 week highs and have P/E ratios below 15.
Here are a few of the options you can look at for Canadian banks right now:
Bank of Nova Scotia (BNS)- Share price $57.68/ Market Cap $69.87 Billion/ 52 week range $46.38-$76.75/ EPS $6.09/ P/E Ratio 9.47/ Dividend $3.60/ Dividend Yield 6.24%.
This is my personal favourite currently; they have a really high dividend yield, low P/E ratio and are still almost $20 per share below their 52 week high. I am also biased towards them as I have been banking with them since I was 14 and they have never turned me down when I have asked for money from them (and even throw money at me when I don’t ask for it sometimes).
Bank of Montreal (BMO)- Share price $78.03/ Market Cap 50.17 Billion/ 52 week range $55.76-$104.75/ EPS $7.49 /P/E Ratio 10.41/ Dividend $4.24/ Dividend Yield 5.43%.
Bank of Montreal is high up on my list for their low share price compared to their 52 week high, low P/E ratio, good dividend yield as well as when they pay their dividends (they are currently my only stock that pays a dividend in February, May, August, and November). I have a hard time finding companies I want to buy that pay dividends in these months so when I finally found one I jumped on it.
Royal Bank of Canada (RY)- Share Price $97.46/ Market Cap $138.72 Billion/ 52 week range $72.00-$109.68/ EPS $7.81/ P/E Ratio 12.49/ Dividend $4.32/ Yield 4.43%.
Royal Bank is lower on my list because they are one of the bigger banks they have recovered faster than the rest so far. They are not as far off their 52-week high, their P/E is approaching 15 and their dividend yield is low compared to my top 2 banks. I don’t feel they have quite as much room left to run as some of the other Canadian banks, though their share price will more than likely still increase some in the next few months.
Toronto-Dominion Bank (TD)- Share price $63.43/ Market Cap $114.42 Billion/ 52 week range $49.01-$77.72/ EPS $5.69/ P/E Ratio 11.14/ Dividend $3.16/ Yield 4.98%.
I also feel that TD is a solid buy right now. Due to them being on the larger side for a Canadian bank as well they have had a slightly faster recovery so far but still have room to run and a fairly high dividend yield still as well.
Canadian Imperial Bank of Commerce (CM)- Share price $97.17/ Market Cap $43.26 Billion/ 52 week range $67.52-$115.96/ EPS $9.11/ P/E Ratio 10.67 / Dividend $5.84/ Yield 6.01%.
They are the smallest of the big Canadian banks and actually moved up to a solid 3rd on my list of banks to buy while researching for this article. They are almost $20 per share below their 52 week high still, have a low P/E ratio and a high dividend yield. I would probably try for an even 6% yield after a small share price drop because I like round numbers like that and 6 is better than 5 lol.
In my opinion all of the big Canadian banks are a solid long term buy right now. They will all likely make you a lot of money long term. The only hard part will be figuring out which one, or ones, will grow the most.
Disclaimer: I am currently long on BMO and BNS. I do not hold positions in any of the other stocks mentioned and do not currently plan to open one. All stock prices and quotes are as of August 12, 2020.