Afraid of a Delta Downturn? 2 Bank Stocks Could Overcome the Threat

Income stability is the main selling point of Bank of Montreal stock and Bank of Nova stock. The two banks could endure a Delta-induced downturn.

| More on:

Investors can’t disregard the possibility of a Delta-induced downturn. Interestingly, the S&P/TSX Composite Index keeps surging as speculations rise. The index declined on August 9, 2021, due to fears the deadly COVID variant could weaken oil demand.

The TSX stormed back two days later to register an all-time high of 20,554. Still, a meltdown isn’t remote, despite the index’s outperformance. No one knows if the threat is for real. The solution to reducing your anxiety is to stay on the safe side.

Stay invested in mature companies that have been through the worst recessions. Bank of Montreal (TSX:BMO)(NYSE:BMO) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are no-nonsense investments for risk-averse investors.

Resilient sector

The financial sector, where the Big Five banks belong, is the third-best performer among the 11 primary sectors thus far in 2021. It also posted the biggest percentage advance (+20.89%) in the last six months. Meanwhile, BMO (+36.84%) and BNS (+21.98%) outperforms the TSX (+17.69%) year to date.

If you want income stability, make the pair your anchors in an unpredictable environment. Remember that the big banks increased their provision for credit losses (PCLs) in 2020 to absorb the anticipated deterioration of loan portfolios.

Fortunately, credit quality held steady in that BMO and BNS reduced their PCLs. As a result, both banks have bloated cash reserves. In Q2 fiscal 2021 (quarter ended April 30, 2021), BMO’s excess capital was $6.9 billion. BNS has $5.2 billion more in the war chest. Market analysts predict huge dividend increases soon.

First ever to pay dividends

BMO is the dream investment primarily because of its status as the pioneer in dividend payments. The dividend track record of Canada’s fourth-largest bank is eight years shy of two centuries. It should give you the confidence to invest if BMO hasn’t missed a dividend payment for 192 years.

You can own the bank stock for $128.73 per share to partake of the 3.29% dividend. The price tanked to as low as $52.44 during the height of the emergency crisis. But BMO’s current share price is 145.48 higher than the closing price on March 23, 2020. If a Delta downturn occurs, BMO should display the same resiliency and recovery patterns. In the last 48.7 years, the most investor-friendly stock’s total return is 27,466.73% (12.23% CAGR).

Known worldwide

BNS started paying dividends in 1832, so its track record is approaching 200 years, too. This $98.28 billion bank is more international than BMO. Apart from the core domestic market, Scotiabank caters to clients in Chile, Colombia, Mexico, Peru, Central America, and the Caribbean. Its wealth management business segment is present in 14 countries.

Canada’s third-largest lender pays the highest dividend (4.44%) among the Big Five bank stocks. The payouts should be safe and sustainable, given the 58.06% payout ratio. The global pandemic hurt BNS shares. Its price fell sharply to $42.93 on March 23, 2020, during the market selloff. Currently, the bank stock trades at $80.97 per share, or 88.61% higher than its COVID low. BNS’s total return in the last 47.8 years is 182,773.36% (16.68% CAGR).

Keep a long-term perspective

Don’t let the market noise or dire predictions unsettle you. The bull market will eventually run its course, and the bears will take over. You can maximize returns and minimize risks through long-term investing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »