Diversification of Canadian Banks – Take Two

Last week, I posted an article that took a deep dive on the geographical diversification of the Big Five Canadian banks – Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM). The article can be found here.

In that article, I presented data for geographical revenue diversification of the banks – and presented 10-year trend charts.

Revenue provides only part of the story, and I decided to continue digging and pull the earnings numbers as well. Unfortunately, the earnings presented in the annual reports are broken down by segment and not geographical regions, so there is no apple-to-apple comparison to see which geography is earning the most. However, looking at the segment breakdown can also provide some insight on which direction a bank is headed.

For the sake of completeness, I am also including the charts for geographical revenue diversification in addition to the earnings-by-segment charts. Enjoy.

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Recent Buy – Toronto-Dominion Bank

TD Bank

July is turning out to be a month where I am putting a lot of cash to work. This is already my third purchase for the month! Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In staying true to tradition, here’s another purchase in my portfolio adding to an existing position.

I added to my position in Toronto-Dominion Bank (TD.TO) with 25 shares @ C$52.28. The company yields 3.87% adding C$51.00 to my annual passive income.

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Look to Canadian Banks for A Strong Financial Exposure

A country with a population of 35 million and growing at the rate of 1.2% annually, one of the least densely populated countries in the world, Canada is home to some very strong and resilient corporations in the world. The resource rich country is placed well to take advantage of macro trends such as warming climate providing access to the melting Arctic amongst other advantages. The climate change allows Canada to take advantage of controlling the shipping lanes (the Northwest Passage providing shorter and more efficient shipping routes between the east and the west), expanded farmland (longer growing seasons), underwater mineral and oil/natural gas resources (the melting ice caps provides easier access). While each of these can be targeted as an opportunity to invest in, an easier and safer way to expose to the bright future of the growing economy is to invest in the financial sector – a key to any strong and growing economy. Canadian banks are some of the safest banks in the world and have been rated very highly in global rankings by countless organizations.To continue reading, click here.

Dividend Comparison – Financial Sector

Hey all! I decided to review my holdings in the financial sector and compare them to the rest of the competitors in the sector. The dividend comparisons as listed below gives me a wide picture of the relative value of each company. I use this as a starting point to find value in the sector and drill down from there to find the one to invest in.

US banks

To start off, comparison in the US financial sector has some very wide ranging numbers due to the 2008 crisis. Dividend yields range from 0.08 to 2.8% and there are some dismal numbers when you look at the dividend growth rates over the past 5 years.

Company Name Ticker Quote P/E Yield Payout Ratio 5-yr DGR
Bank of America BAC $13.28 42.67 0.30% 13% -56.47%
Wells Fargo WFC $42.83 12.13 2.80% 26% -4.40%
JPMorgan Chase JPM $54.70 9.77 2.78% 21% -3.38%
Citigroup C $49.52 17.80 0.08% 1% -70.26%
US Bancorp USB $37.05 12.80 2.48% 27% -13.42%
PNC Financial PNC $76.35 13.57 2.31% 28% -8.45%

Canadian banks

Canadian banks look much healthier with most of them on par with each other. All banks have a healthy yield north of 3.5% and all payout ratios in their 40s.

Company Name Ticker Quote P/E Yield Payout Ratio 5-yr DGR
Bank of Montreal BMO $62.02 10.41 4.77% 48% 0.71%
The Bank of Nova Scotia BNS $55.56 10.39 4.32% 43% 4.47%
CIBC CM $74.35 9.24 5.16% 46% 1.67%
National Bank NA $74.41 8.62 4.68% 41% 6.18%
Royal Bank of Canada RY $61.16 11.44 4.12% 45% 4.13%
Toronto Dominion TD $84.19 11.88 3.85% 43% 6.38%

My portfolio holdings of WFC, BNS and FIE.A (a Canadian Financial ETF) have performed well and am happy with the state of affairs. I am considering adding some more financial sector stocks sometime in the future depending on a few things including – opportunities (if and when there is a pullback), rebalancing my portfolio etc. My current weighting in the financial sector is about 10% and am considering some rebalancing at the end of the year.

Disclosure: I own WFC, BNS, FIE.A.

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.