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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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CRA: 3 Big Changes Coming to 2023 Tax Breaks

| Aditya Raghunath

Use the tax breaks to lower your tax bill and purchase blue-chip TSX stocks such as Royal Bank of Canada.

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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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TFSA Investors: How to Earn $2,780 a Year and Pay ZERO Tax to the Canada Revenue Agency!

| Andrew Button

Pay less tax to the Canada Revenue Agency by holding dividend stocks like The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) in a TFSA

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This Canadian Bank Could Plunge Another 10%

| Joey Frenette

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2 Stocks to Buy and Hold in 2020

| David Jagielski

Royal Bank of Canada (TSX:RY)(NYSE:RY) and this other stock could be great buys this year.

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3 Bold Predictions About TD Bank (TSX:TD) Stock in 2020

| Adam Othman

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These two dividend stocks deserve to be on your RRSP radar.

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3 Reasons I’m Wildly Bullish on TSX Stocks

| Nelson Smith

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Bank Stocks

I Like CIBC (TSX:CM) — and You Should Too!

| Chen Liu

CIBC is trading at a steep discount to its intrinsic value. Buy shares for your TFSA and RRSP today!

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| Cindy Dye

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| Christopher Liew, CFA

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| Mat Litalien, MBA

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| Adam Othman

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| Haris Anwar

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Top Value Stocks to Buy in This 2020 Bull Market

| Mat Litalien, MBA

The TSX Index is hitting new highs but there is still value to be found in stocks such as CIBC.

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| Andrew Walker

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| Joey Frenette

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Investors: 1 ETF You Should Avoid… Forever

| Nelson Smith

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Add a Passive-Income Source in 2020 Using 2 Dividend Stocks

| Adam Othman

Transcontinental stock and Bank of Nova Scotia stock are two Dividend Aristocrats that you can count on for dependable and…

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Revealed: This Is the #1 Bank Stock!

| Chen Liu

BMO is trading at a steep discount to its intrinsic value. Buy shares for your TFSA and RRSP today!

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| Adam Othman

CIBC and Alaris stocks are ideal stocks. You could use them to boost your TFSA income through dividend yields of…

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ALERT: Avoid This 1 Bank Stock!

| Chen Liu

National Bank of Canada is trading significantly above intrinsic value. I would avoid the stock in your TFSA and RRSP.

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TFSA Investor: Is CIBC (TSX:CM) Stock a Buy for the 5% Dividend Yield?

| Andrew Walker

Deals can still be found in the TSX Index today. Is CIBC (TSX:CM) stock on sale?

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Bank Stocks

Bank of Nova Scotia (TSX:BNS) Is Under Pressure After a Lacklustre 2019

| Matt Smith

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) was the second worst performing big six bank in 2019 and will remain under pressure…

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TFSA Investors: How to Make $2780 in Passive Income in 2020!

| Andrew Button

With Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock, you can earn $2780 a year tax-free in your TFSA

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The Perfect Canadian Stock to Buy for Savvy TFSA Investors

| Debra Ray

Power Corporation of Canada (TSX:POW) is merging stock with its subsidiary Power Financial Corporation (TSX:PWF), making it a great asset…

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Dividend Stocks

These 3 Dividend Kings Haven’t Missed a Payout in 50 Years

| Nelson Smith

Want consistent dividends? Then check out Bank of Montreal (TSX:BMO)(NYSE:BMO), Enbridge (TSX:ENB)(NYSE:ENB) and BCE (TSX:BCE)(NYSE:BCE).

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Dividend Stocks

Here’s How Much Money You Need by Age 50 to Reach $1,000,000 by Retirement

| David Jagielski

Royal Bank of Canada (TSX:RY)(NYSE:RY) is a top dividend stock that can be instrumental in growing your portfolio for many…

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New to Investing? 3 Reasons Why RBC (TSX:RY) Stock Is a Fantastic Buy

| Jason Hoang

Failsafe banking practices and relative immunity to international financial crises make RBC stock one of the best purchases for new…

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Dividend Stocks

TFSA Investors: How to Turn $6,000 Into a Tax-Free “Pension” to Supplement CPP!

| Andrew Button

If you want to turn your TFSA into a tax-free income stream, consider dividend stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

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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.