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Bank Stocks

What are bank stocks?

Bank stocks represent partial ownership in a financial institution that’s licensed to hold and loan money. Over time, bank stocks have been relatively safe investments, as they offer products and services that most people need.

How do you choose a good bank stock? 

1. Look at the bank’s profitability

First, you want to be sure the bank is even profitable. To do that, you can use the following metrics. 

  • Return on equity (ROE): this metric tells you how much profit a bank makes from its shareholder’s equity. The higher this metric, the more efficient a bank is using its stakeholder’s money. 
  • Return on assets (ROA): the ROA tells you the overall profit a bank makes in relation to its assets. The higher the ROA, the more profit a bank makes from its assets. 
  • Efficiency ratio: the efficiency ratio tells you how much revenue a bank uses towards its operating costs. The lower the efficiency ratio, the more revenue a bank theoretically has. 

2. Assess the bank’s risks 

One of the biggest risks a bank has is losing money on an outstanding loan. As with profitability, a couple metrics could help you see how much banks are losing.

  • Nonperforming loans ratio (NPL): Nonperforming loans are loans that are at least 90 days past their due date. A bank with a low percentage of NPL (2% is a good ratio) is doing fairly well collecting loan repayments from its customers. 
  • Net charge-offs: a net charge-off is a bank’s declaration stating that a loan hasn’t been paid and is unlikely to be paid. As with NPLs, the less net charge-offs a bank has, the less money it’s losing on outstanding loans. 

3.  Check back here for our top picks 

Finally, we’ll keep this page updated with our staff writer’s reviews and assessment of Canada’s bank stocks. Our writers often use these metrics to help investors see which bank stocks are doing well and which are doing poorly. 

Check back here for the most up to date information about bank stocks in Canada.

Top Articles

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| Andrew Button

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| Aditya Raghunath

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The 1 TSX Stock I’d Go All-In On

| Andrew Button

TD Bank (TSX:TD)(NYSE:TD) stock is out of favour now but could come back in a big way.

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Recent Bank Stocks News

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The more you learn about the harsh truths about retirement, the better you can prepare. Start the preparing by saving…

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Top dividend-growth stocks on sale.

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| Matt Smith

By attractively valued Bank of Nova Sccotia (TSX:BNS)(NYSE:BNS) today and lock-in a 6% yield.

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The CIBC stock and Suncor stock are attractively valued yet high-quality assets you might want to consider buying on the…

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Market Crash 2020: TSX Stocks Suffer Worst Decline Since 1987

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Why did the Canadian equity markets fall by 10.7% yesterday?

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TFSA investors need to avoid overcontributing to their account. They also need to understand the impact of capital gains and…

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| Andrew Walker

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Why Toronto-Dominion Bank (TD) Stock Price Fell 5.6% in February

| Karen Thomas, MSc, CFA

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Bank Stocks

Market Crash: A Top Canadian Dividend Stock for Contrarian TFSA Investors

| Andrew Walker

Top Canadian dividend stocks are becoming oversold. Is this the right time for contrarian investors to buy?

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How to Reach $800,000 in Your TFSA by Investing Just $500 a Month

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| Kay Ng

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Updated: Ranking Canada’s Best Bank Stocks for the Rest of 2020

| Nelson Smith

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Bank Stocks

BMO (TSX:BMO) and Scotiabank (TSX:BNS): 2 Top Dividend Stocks to Add to Your TFSA in March

| Ambrose O'Callaghan

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| David Jagielski

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| Kay Ng

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RBC (TSX:RY) is a Bank Stock to Buy and Never, Ever Sell

| Adam Othman

Royal Bank stock is the leading company on the TSX and the largest bank in the country.

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| Andrew Walker

Buying top dividend stocks on the dips can result in big long-term gains.

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| Andrew Walker

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Top Canadian Stocks To Avoid on the BOC Interest Rate Cut

| Mat Litalien, MBA

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Income Investors: A Top Canadian Dividend Stock Yielding 5% for Your TFSA

| Andrew Walker

Top Canadian dividend stocks are getting cheap.

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CRA Tax Tips: 3 Ways to Stay Tax-Free With Your RRSP and TFSA

| Christopher Liew, CFA

The way to stay tax-free with your RRSP and TFSA is not to commit mistakes that will cause tax penalties.…

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TFSA Pension: A Cheap Canadian Dividend Champion to Start a Self-Directed Retirement Portfolio

| Andrew Walker

This top TSX Index stock is now trading near its 12-month low.

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Market Selloff: These 3 Value Stocks Just Got Ludicrously Cheap

| Nelson Smith

You won't believe how cheap TD Bank (TSX:TD)(NYSE:TD), Transcontinental (TSX:TCL.A) and Great Canadian Gaming (TSX:GC) shares are today.

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Buying Opportunity: Canada’s Fastest-Growing Bank Stock Just Plunged 25%

| Nelson Smith

Equitable Group (TSX:EQB) is one of the best growth stories in Canada. It has now become one of the cheapest…

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Dirt-Cheap Dividend Stocks to Buy in March 2020

| Kay Ng

Buy cheap dividend stocks like Scotiabank (TSX:BNS)(NYSE:BNS) stock to receive more dividend income while beating the market!

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Canada Revenue Agency: Here’s 1 Silly TFSA Mistake to Avoid in 2020

| Jason Hoang

A lot of TFSA users make this one silly mistake that ends up costing them big money. Here’s what it…

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5 Minutes a Day Can Build Money Habits That Could Make You Rich

| Christopher Liew, CFA

Rich people have specific money goals, save like clockwork, and invest in quality assets like the Royal Bank of Canada…

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Why Bank of Montreal (BMO) Stock Price Fell 9.6% in February

| Karen Thomas, MSc, CFA

The Bank of Montreal (TSX:BMO) (NYSE:BMO) stock price falls in February as coronavirus fears escalate and as this Canadian bank…

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Canada Revenue Agency: How Retired Couples Can Earn an Extra $5,560 and Avoid OAS Clawbacks

| Andrew Walker

Here's how Canadian pensioners can boost income without being hit by the CRA's OAS clawback.

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Toronto-Dominion Bank’s (TSX:TD) Stock Price Is Falling Behind

| Mat Litalien, MBA

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) was the only one to miss first quarter earnings estimates.

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BMO (TSX:BMO) Boasts a Rock-Steady Dividend Payment Streak Since 1829

| Jason Hoang

BMO is a stock choice par excellence for any long-term investor. Continue reading to learn what makes this stock so…

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Frequently Asked Questions

Why invest in bank stocks?

Quality bank stocks have a strong history of generating profits and managing crises, making them a great investment.

In addition to their strong performance, many of Canada’s top banks pay dividends, with payouts that increase over time. For Canadian investors looking to pocket a little extra from their stocks, dividends can help you buy more shares or more cash.

Finally, bank stocks can help diversify your investing portfolio. If you already have stocks in other sectors (mining, technology, energy), bank stocks could add much needed stability, as well as expose you to the gains in another sector.