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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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| Chris MacDonald

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| Brian Paradza, CFA

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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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Do you still have a contribution room available in your TFSA? Here are three top stocks to load up on…

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| Andrew Button

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Why TD Bank Stock Might Be the Dividend Play of the Decade

| Joey Frenette

TD Bank (TSX:TD) stock is getting too cheap to ignore following its latest summer slump.

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With a 7% Dividend Yield, Is it Time to Buy Bank of Nova Scotia Stock?

| Andrew Walker

Bank of Nova Scotia is under pressure. Is more downside on the way?

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3 Reasons I’m Buying Scotiabank Stock Today

| Amy Legate-Wolfe

Scotiabank (TSX:BNS) stock offers a superbly high dividend yield at 7.14%, but there's even more reason to consider the stock.

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Invest in Businesses, Not Stocks: 2 High-Yielders Worth Owning Today

| Andrew Button

Bank of Nova Scotia (TSX:BNS) currently has a sky high 7.4% dividend yield.

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Should You Buy BMO Stock for its 5.35% Yield Today?

| Amy Legate-Wolfe

BMO (TSX:BMO) stock has hit 52-week lows, but does this create an opportunity or warning for investors to note?

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Down 11.6% in 1 Year, Is Scotiabank Stock a Buy Today?

| Andrew Button

The Bank of Nova Scotia (TSX:BNS) stock is really taking a beating this year.

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Royal Bank of Canada: The King of Dividends in the Banking Sector?

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Turn Your TFSA Into a Gold Mine Starting With Just $6,500

| Amy Legate-Wolfe

CIBC stock (TSX:CM) offers investors an excellent opportunity for major growth. In fact, it's done it before!

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TD Stock: Buy, Sell, or Hold?

| Karen Thomas, MSc, CFA

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| Christopher Liew, CFA

A fintech stock with market-beating returns outperform traditional bank equities in 2023, including the Big Six Canadian banks.

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This 5.13% Dividend Stock Is One Every Canadian Should Own

| Christopher Liew, CFA

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What Rising Interest Rates Really Mean for Financial Stocks

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Bank Stocks Look Like a Steal: Here’s My Favourite for October 2023

| Joey Frenette

TD Bank (TSX:TD) stock looks dirt cheap, as it continues to fluctuate in this rocky economic environment.

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Striking Gold: Unearthing Canada’s Most Lucrative Stocks

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CIBC vs. Scotiabank: Which Is the Better Buy Today?

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Canada’s Financial Powerhouses: Unveiling the Top Bank Stocks

| Andrew Button

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| Tony Dong, MSc, CETF®

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Is goeasy Stock a Buy in September 2023?

| Jitendra Parashar

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Is EQB Inc’s Growth Sustainable?

| Andrew Button

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| Kay Ng

TD stock has a better chance of delivering slightly higher total returns and dividend income over the next five years.

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| Jitendra Parashar

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This Is the Only Bank Stock That Has Gained in 2023: Should You Buy Today?

| Ambrose O'Callaghan

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Why Now Is the Time to Buy TD Stock in Bulk

| Amy Legate-Wolfe

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Here’s What I Would Buy Instead of RBC Stock

| Tony Dong, MSc, CETF®

Here's why I personally like this ETF better than RBC stock.

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Is BMO Stock a Buy Today for Its 5% Dividend?

| Aditya Raghunath

Bank of Montreal stock has provided game-changing returns to shareholders in the last two decades. Is BMO stock still a…

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Better Buy: Canadian Bank Stocks or Fintech Stocks?

| Andrew Button

Banks like Royal Bank of Canada (TSX:RY) have been performing well, but could fintech stocks be even better?

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Should You Buy CIBC Stock for its 6.43% Yield?

| Amy Legate-Wolfe

CIBC stock has a long history of dividend growth, but the stock had a reasonably poor earnings result. So what…

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TD Stock: What Investors Should Take Away From Earnings

| Amy Legate-Wolfe

TD stock (TSX:TD) has a long history of growth and stability, yet concerns were raised after its most recent earnings…

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Better Buy: Bank of Montreal Stock or Canadian Imperial Bank of Commerce?

| Kay Ng

For higher total returns potential, take a position in Bank of Montreal stock. If you need more income now, consider…

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I Was Wrong About TD Bank

| Andrew Button

Toronto-Dominion Bank (TSX:TD) was once a mainstay of my portfolio, but I've dramatically reduced my exposure. Here's why.

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BUY ALERT: Why I’m Stacking Scotiabank Stock Today!

| Ambrose O'Callaghan

Scotiabank (TSX:BNS) stock looks like a screaming buy for its value and income, as investors battle volatility in the late-summer…

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BMO Stock: Why a 5% Dividend Yield Isn’t Why I’m Buying This Dividend Stock

| Amy Legate-Wolfe

BMO (TSX:BMO) stock is certainly an excellent bank stock, as are the others. But there is even more reason to…

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Canadian Bank ETFs: An Easy Way to Invest in the Big 6

| Kay Ng

For long-term investing, ZEB is a good bet. If you expect the bank stocks to be depressed in the near…

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Should You Buy CIBC Stock for its 6.5% Yield?

| Ambrose O'Callaghan

Canadian Imperial Bank of Commerce (TSX:CM) released Q3 earnings that fell short of expectations, but I’m still stacking CIBC shares…

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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.