Most Canadian bank stocks offer investors the opportunity to benefit from a steady stream of dividend income and long-term capital gains. Due to their strong fundamentals and conservative business decisions, Canadian banks have managed to deliver outsized gains to long-term investors.
Yes, lending is a cyclical industry, and the fears of multiple interest rate hikes, rising inflation numbers, and the onset of a global recession might impact revenue and earnings for banks in the near term. However, it also offers investors the opportunity to buy stocks at a lower multiple.
Let’s take a look at two bank stocks TSX investors can buy right now.
National Bank of Canada (TSX:NA) With an asset base of $367 billion and $773 billion in assets under management, National Bank of Canada (TSX:NA) is one of the largest companies on the TSX valued at $31.3 billion, by market cap. In the fiscal Q1 of 2022 that ended in January, National Bank of Canada reported revenue of $2.46 billion and a net income of $932 million, or $2.65 per share.
It pays investors $3.48 per share in annual dividends, indicating a forward yield of 3.8%. The bank’s payout ratio stands at 31.3%, which is sustainable. In the medium term, National Bank aims to grow adjusted earnings at an annual rate of between 5% and 10%. Comparatively, Bay Street expects NA stock earnings to expand by 9% annually in the next five years.
After adjusting for dividends, National Bank of Canada has returned close to 300% to investors in the last 10 years. Despite its stellar gains, the stock is valued at an attractive forward price-to-earnings multiple of 9.7. According to consensus price target estimates, National Bank stock is trading at a discount of more than 10% right now.
Laurentian Bank of Canada Valued at $1.66 billion by market cap, Laurentian Bank of Canada (TSX:LB) has underperformed the broader markets in the last decade. Since, May 2012, Laurentian Bank has returned 52.4% to investors, after accounting for dividends. At the time of writing, Laurentian Bank pays annual dividends of $1.76 per share, amounting to a forward yield of 4.6%.
In Q1 of fiscal 2022, Laurentian Bank of Canada reported a net income of $59.5 million and earnings per share of $1.26. In the year-ago period, its net income stood at $47.6 million with adjusted earnings of $1.03 per share.
Further, Laurentian Bank of Canada reported a return on shareholder’s equity of 9.2% in Q1 compared to 7.5% in the prior-year quarter.
Laurentian Bank unveiled a strategic plan to achieve long-term profitable growth. It expects commercial banking to remain a key driver of revenue as Laurentian Bank will focus on growing its portfolio mix contribution from the U.S. and diversifying into new focus industries.
The company explained, “Capital Markets has a unique value proposition that provides mid-sized customers with personalized service and will further align its capabilities to meet the needs of Commercial Banking customers, expand product capabilities and build out ESG-focused advisory services.”
LB stock is valued at eight times forward sales, which is quite cheap, given its earnings are forecast to rise at an annual rate of 7% in the next five years.
The post 2 Bank Stocks That Pay Canadians Tasty Dividends appeared first on The Motley Fool Canada.
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.