Bank on This: 5 Must-Own Canadian Financial Stocks for 2023

EQB Inc (TSX:EQB) is one of Canada’s fastest-growing banks, and there are four others that are doing well, too.

| More on:

For many investors, banks stocks are a frightening prospect. In March and April, several U.S. banks failed after a run on deposits wiped out their liquidity. Today, many investors are afraid that the same thing will happen again.

However, if you look closely, you’ll notice that many of the banks that collapsed shared similarities. Most of them were regional banks, and all of them were American banks. Depositors fled them when the collapse of Silicon Valley Bank led to a loss of faith in small banks. Big banks are still doing well.

In this article, I will explore three large TSX banks that should do well in the year ahead.

TD Bank

Toronto-Dominion Bank (TSX:TD) is a Canadian bank that is well known internationally. It has a large U.S. retail business that is well known for its rapid growth. The U.S. segment contributes about 38% of TD’s net income, and it’s still growing.

TD Bank recently withdrew its merger with First Horizon, a very expensive deal that would have cost TD $13.4 billion and caused shareholder equity to decline by $5.9 billion. The offer that TD made for First Horizon was questionable to begin with and began to look really out there when the regional banking crisis got underway. Now that the FHN deal is over, TD will be able to maintain its high liquidity and capital ratios.

EQB Inc

EBQ Inc (TSX:EQB) is a small Canadian online bank. It does not operate any branches, instead opting to let depositors open their accounts online. It offers some very high-yield Guaranteed Investment Certificates that are sure to attract depositors.

Whatever EQB is doing seems to be working. Over the last five years, the bank has grown its earnings at 10.8% per year and its revenue at 18% per year. Both figures are well above average for Canadian banks. Its most recent quarterly release beat analyst estimates on revenue and earnings per share. This is definitely a bank worth watching.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS), hereafter referred to as “Scotiabank,” is a Canadian bank that is best known for its large presence in Asia and Latin America.

BNS does not have the best growth track record of all Canadian banks. Over the last five years, it has grown its revenue at just 3.3% per year and its earnings at just 1.3% per year. It has fallen behind its more U.S.-oriented peers. The upside of all this is that the stock has performed so poorly that it now has a 6% dividend yield. So, it could be a good income play.

Two more banks worth mentioning

In addition to the three banks discussed at length above, there are two others worth mentioning briefly.

Royal Bank is Canada’s biggest bank by market cap. It has a much steeper valuation than most of its peers, but it also has a big deal on the horizon: it is acquiring HSBC Canada, a major Canadian branch of a U.K. bank. This deal will add over a billion a year to RY’s net income.

There’s also Bank of Montreal. It recently closed its deal to acquire Bank of the West from BNP Paribas. This deal will boost BMO’s earnings considerably. I think it was a much better deal than TD’s botched FHN deal.

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 Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool recommends Bank Of Nova Scotia and EQB. The Motley Fool has a disclosure policy.

More on Bank Stocks

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »

stocks climbing green bull market
Bank Stocks

2 Undervalued Canadian Bank Stocks to Buy Now

Here's why investing in undervalued Canadian bank stocks such as BMO and EQB can help you beat the TSX Index.

Read more »

money goes up and down in balance
Bank Stocks

Is National Bank of Canada Stock a Buy for Its 3.4% Dividend Yield?

National Bank of Canada stock has surged over 1,000% in the past two decades, if we adjust for dividend reinvestments.

Read more »