The recent news of an inverted yield curve from the U.S. Federal Reserve has everyone in North America on edge. In the last 60 years, the news has demonstrated that a recession is approaching each time except once. Naturally enough, everyone is trying to strengthen their portfolios before such an event.
Some of the best ways investors can do this is by investing in banks, specifically Canadian banks. Canada’s Big Six Banks fared some of the best in the entire world after the Great Recession of 2008, making any of the Big Six a great choice when it comes to protecting your investments.
But there are two banks that are fairly similar when it comes to bearing a bear market: Royal Bank of Canada (TSX:RY)(NYSE:RY) and Bank of Montreal (TSX:BMO)(NYSE:BMO), although one may slightly outweigh the other.
Royal Bank I recently wrote that Royal Bank is in for a drop, and I still believe it will. All banks will when a recession hits, but this will be the best time to buy up this valuable stock. However, that doesn’t mean that it makes right now a bad time.
If you’re thinking of selling your investments to put it in something stable that will get you through the recession, you can’t really go wrong with Royal Bank. While the bank’s investments in both Canada and the U.S., and of course the housing market, make it susceptible to a plunge during a recession, it also makes it able to emerge from a recession fairly quickly.
And it has the balance sheet to support this theory, creating quite the cushion of cash to help it through any tough times. It has over $5 trillion in assets under administration and $650 billion of assets under management, and $556 billion in cash. Its most recent report for fiscal 2018 reported adjusted net profits of $12.4 billion, with medium-term earnings-per-share growth of 7% per year.
This should be great news to investors old and new, as it means that the bank can support an increase in the dividend, some nice cash to get you through any bear market. The dividend currently sits at 4.05% at the time of writing.
Bank of Montreal Similar to Royal Bank, Bank of Montreal is also in a position of exposure to the United States market. This comes from the BMO Harris Bank, BMO Private Bank and BMO Capital Markets. The company continues to build up and expand its presence in the U.S., and investors should be happy about that in the long term.
Similar to Royal Bank, this means two things: that the company has been raking in cash coming up to any recession, and once the recession is over it should rebound quickly. The main difference between the two appears to be that BMO has a slew of ETFs that have gained quite a lot of popularity.
The bank’s recent reports support this theory. BMO has had year-over-year returns of 8.1%, outperforming the industry and the market. Its 2018 earnings growth was 24.6%, and since the new year, its shares have been on an upward trend. It’s broken that $100 mark and remained above it for the last two months.
Analysts believe that the stock will continue to grow before it drops in any recession, reaching perhaps $120 per share in the next 12 months. This should also bring along with it some dividend growth as well, with the dividend currently sitting at 4% at the time of writing.
Bottom line You really can’t go wrong with either bank before a bear market, so it depends on what you’re looking for. Royal Bank is one of Canada’s largest banks, with a steady and stable presence in the United States and a steady and stable income to match. Emerging from the recession should therefore not be difficult.
BMO is a similar choice but is still growing, and is not as big at Royal Bank. However, I would definitely look at its ETFs for some low-volatile investment options.
Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019