On March 4, the Bank of Canada followed the lead of the United States Federal Reserve and moved forward with a 50-basis-point rate cut. This lowers the benchmark rate to 1.25%. Later that day, Canadian banks followed suit and dropped their prime lending rate by basis points. The S&P/TSX Composite Index shot up 355 points on the day of the move, but it is unclear how much of an impact this monetary shake-up with have in the face of the coronavirus crisis.
In previous articles, I’ve discussed why this pullback offers an opportunity for investors to buy stocks at great value. Canada’s top banks have slipped with the broader market. The rate cut is a double-edged sword, which should prop up a housing market on the mend and boost investment, but it will also put pressure on margins for top financial institutions.
Today, I want to look at two top bank stocks that offer good value and nice income right now. Let’s jump in.
Scotiabank
Scotiabank (TSX:BNS)(NYSE:BNS) stock has dropped 2.4% over the past week as of close on March 4. This pushed shares into negative territory for 2020. The stock has only increased 2% from the prior year.
In its full-year 2019 results, Scotiabank projected that its domestic banking operations would contribute more to its growth in the coming fiscal year. The bank released its Q1 2020 results on February 25. Adjusted net income in its Canadian Banking segment rose 5% year over year to $908 million on the back of higher net interest income — powered by strong volume growth Its strongest performance was in its Global Wealth Management and Global Banking and Markets segments, which posted adjusted profit growth of 11% and 35%, respectively.
The bank last paid out a quarterly dividend of $0.90 per share, which represents a strong 5.1% yield. Its stock last had a favourable price-to-earnings (P/E) ratio of 10 and a price-to-book (P/B) value of 1.3. Shares have climbed out of oversold territory, but I still love Scotia’s value right now.
Bank of Montreal
Shares of Bank of Montreal (TSX:BMO)(NYSE:BMO) had dropped 5% over the past week at the time of this writing. The stock was down 8.6% so far in 2020. BMO released its first-quarter 2020 results on February 26.
Adjusted net income rose 5% year over year to $1.61 billion and adjusted earnings per share posted 4% growth to $2.41. Revenue increased 8% from Q1 2019 to $6.03 billion. Canadian Personal and Commercial Banking saw its adjusted profit climb 8% from the prior year to $700 million on the back of strong revenue growth. Its Capital Markets segment had the most impressive quarter as adjusted profit rose 38% year over year to $362 million.
BMO maintained its quarterly dividend payout of $1.06 per share. This represents a solid 4.6% yield. Its shares last possessed an equally good P/E ratio of 10 and a P/B value of 1.2. Shares of BMO last had an RSI of 21, which means its stock is still in technically oversold territory.
