Tag Archives: TSX:CM

Benefit from Rising Interest Rates with the Big 5 Canadian Banks

This is a guest contribution by Nick McCullum of Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to identify high-quality dividend stocks suitable for long-term investment.

The Big 5 Canadian banks offer great dividends and the stocks look poised for steady long-term growth if interest rates continue to go higher.

This article will discuss:

  • why we think interest rates in North America are going higher,
  • 5 actionable investment ideas that allow investors to benefit from rising interest rates, and
  • why the banks will benefit from rising interest rates

Interest Rates Are Heading Higher

In both Canada and the United States, the trend is clear: interest rates are on their way up after a prolonged period at near-zero benchmark rates.

In July, the Bank of Canada raised its benchmark interest for the first time since 2010. While the bank did not communicate any concrete plans for future rate hikes, it is likely that more are coming.

Graph of Bank of Canada Overnight Money Market Financing Rate from 1975-2017

Source: YCharts

In the United States, the trend is even more clear.

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Most Popular Articles from January 18-24, 2016

Thousands of investors found the following articles useful last week; you might, too! In these articles, I talked about what I learned from the financial crisis of 2008 and how it applies to the current market downturn, tips for new investors, and what not to do in a falling market.

A bear fights against a bull

Top Article: What I Learned From the Financial Crisis of 2008

Investors who experienced the financial crisis of 2008 would remember the scary experience. For example, the Big Five Canadian banks fell 50% from the 2008 highs to the 2009 lows.

I bought shares of Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) after it fell about 24% from its 2008 high. Yet, it went on to fall another 30%. To learn how I reacted, what lessons I learned, and how I applied the experience to the current market downturn, read more at What I Learned From the Financial Crisis of 2008.

Top Article #2: Tips for Smart Investing

Investing is not exactly easy, but it doesn’t have to be complex either. New investors can start by buying only quality, dividend stocks when the market is down. That way, you’re not paying too much for companies; lower prices also gets you a higher income to start. How?

Just in October, Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) cost as much as $102 per share and yielded only 4.4%. Today, after the pullback, it only costs under $88 per share and yields almost 5.3%. Immediate income boost!

For more investment tips, go to New Investors: Tips for Smart Investing. Read More

Get 4-5% Dividend Yields from the Big Five Canadian Banks

The Big Five Canadian banks are cheap today. They can become cheaper in this market downturn, but three, in particular, look especially attractive at these prices, including Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) that yields 5.3%.

Along with the market decline, the Big Five Canadian banks have also fallen. The banks, Royal Bank of Canada (TSX:RY)(NYSE:RY), Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Bank of Nova Scotia, Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), and Bank of Montreal (TSX:BMO)(NYSE:BMO) have been in business for over a century. The banks are essential to the everyday operations of the Canadian economy, and the banks will be here for a very long time.

So, it’s a good strategy to buy these banks when they’re cheap.

The Big Five Canadian Banks’ Valuations

Comparing each bank’s current multiple to its historical normal multiple, Royal Bank, Bank of Nova Scotia, and Canadian Imperial Bank of Commerce are the best-valued banks at the moment. Indeed, Royal Bank and Bank of Nova Scotia have fallen the most among the group (over 10% in the past year).

tax-free savings account image

Photo Credit: kenteegardin from SeniorLiving.org via Compfight cc

From a valuation perspective, the banks are attractively-priced.

  • Royal Bank is priced at a price-to-earnings ratio (P/E) of 10, while its 10-year normal P/E is 12.6. So, Royal Bank is discounted by 22%.
  • Toronto-Dominion Bank is priced at a P/E of 10.6, while its 10-year normal P/E is 12.4. So, TD is discounted by 15%.
  • Bank of Nova Scotia is priced at a P/E of 9.1, while its 10-year normal P/E is 12.4. So, Scotiabank is discounted by 27%.
  • Bank of Montreal is priced at a P/E of 10.1, while its 10-year normal P/E is 11.7. So, BMO is discounted by 14%.
  • Canadian Imperial Bank of Commerce is priced at a P/E of 8.9, while its 10-year normal P/E is 11.2. So, CIBC is discounted by 19%.

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