Reviewing history, the Big 5 Canadian banks actually don’t have a high short interest, except for CIBC. The Big 5 Canadian banks are some of the most profitable businesses on the Toronto Stock Exchange.
For long-term investors who are looking for stable dividends and stable growth, it does not make sense to sell your stakes in the banks, unless you have a huge allocation, own a large stake in CIBC, or are worried about the health of the housing market in Canada. You’ve got to hold the stock to get the dividends!
We believe there’s a higher probability of slower growth or stagnant growth in the housing market than a meltdown.
Should You Sell Your Big Canadian Bank Shares?
Should you sell your bank shares? The short answer is “no” unless you own CIBC stock and are worried about the health of the housing market. Royal Bank has the least short interest, which indicates investors are finding it to be the safest bank perhaps because the bank is the leader and largest among the Big 5 and also has a focus on high net worth clients.
Here’s a longer answer to the question. Ultimately, investors should answer these questions for themselves and then make a decision on whether to buy/hold/sell accordingly:
Why did you buy the big banks in the first place? What’s your goal?
What’s your allocation in the Canadian banks or each bank?
The U.S. market has been led by the bull for pretty much 10 consecutive years. So, it’s better to take a more defensive stance to prepare for attacks from the bear. A core component of a defensive portfolio is it can utilize conservative dividend stocks as its foundation.
Here are some tips for choosing your foundation conservative dividend stocks.
Earnings or Cash Flow Stability
Healthy dividends are paid from earnings or cash flow. So, stable earnings or cash flow generation improve the dividend safety of a stock.
Typically, utilities, REITs, the big Canadian banks, the big Canadian telecoms, and energy infrastructure stocks are good places to search for businesses that generate stable earnings or cash flow.
When checking for dividend safety, the first 2 things to look at are the payout ratio and dividend track record of the company. Typically, the lower the payout ratio, the safer the dividend.
However, certain industries like REITs and utilities tend to have higher payout ratios. So, it’s best to compare a company’s payout ratio to that of its industry peers.
There are many ways to get to a $100,000 Tax-Free Savings Account (TFSA). The way I’m about to discuss is a simple method with below-average risk, which should help you avoid common TFSA mistakes.
Before I get to what to invest in your TFSA, here’s the general idea.
The gist of our strategy to get to a $100,000 TFSA
Firstly, the TFSA is a savings tool before it’s an investment tool. So, you’ve got to put money in regularly to get your TFSA growing.
Secondly, because we can’t use capital losses to offset capital gains in TFSAs, we’re going to take reduced risk in the account. Specifically, we aim to buy quality stocks that have durable profitability — but only when they’re trading at fair or better valuations.
Thirdly, we want to hold largely proven dividend-growth stocks that offer decent dividend yields of 3-5% (at least initially). This is because we’re pretty late in a bull market (more than 10 years in since the low of the last market crash).
The defensive stance will give us a positive return from decent dividends even in a market downturn. The extra capital from the dividends can be reinvested for more shares at such a time.
Fourthly, we’re aiming for long-term returns of 10% per year, which is very reasonable for blue-chip dividend-growth stocks that offer yields in the range of 3-5%.