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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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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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| Andrew Button

Instead of holding cash in your TFSA, consider buying stocks like The Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

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A third of all Canadians are making this TFSA mistake. Correcting the error and adding stocks like Toronto-Dominion can make…

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These are the top reasons that make Toronto-Dominion Bank (TSX:TD)(NYSE:TD) a forever stock.

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Royal Bank of Canada (TSX:RY)(NYSE:RY) is a good dividend stock to hold for the long term, but it's nowhere near the…

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If you're worried about a recession in 2020, consider owning defensive ETFs like the BMO Covered Call Canadian Banks ETF…

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This past decade has seen some fortunate investors build a $1 million TFSA, but the long game is still the…

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3 Compelling Reasons to Buy RBC (TSX:RY) Stock Right Now

| Adam Othman

Find out the three reasons you should buy Royal Bank of Canada stock -- the largest Canadian bank.

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When is a GIC a better investment than Bank of Montreal (TSX:BMO)(NYSE:BMO) stock?

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3 Impressive Reasons Why You Should Invest in Scotiabank (TSX:BNS)

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Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and another cheap income stock that could make you a million.

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If You Don’t Buy TD Bank (TSX:TD) Shares Today, You’ll Be Kicking Yourself Later

| Nelson Smith

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Should You Buy Royal Bank of Canada (TSX:RY) or CIBC (TSX:CM) Stock Right Now?

| Andrew Walker

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| Nelson Smith

Great dividend stocks like RioCan REIT (TSX:REI.UN) and Laurentian Bank of Canada (TSX:LB) are just as good as a pension.

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| Andrew Walker

A powerful compounding process can turn modest initial investments into a significant retirement fund over the course of 20 years.

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Q4 Earnings: 3 Bank Stocks to Watch

| Ambrose O'Callaghan

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TD Bank’s (TSX:TD) Dividend Growth Is Absolutely Phenomenal!

| Andrew Button

Averaging 10% dividend growth year in and year out, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a real income superstar.

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This Is the Number 1 TFSA Mistake You Must Avoid

| Adam Othman

As great an opportunity as a TFSA is, you need to learn how not to make this mistake so you…

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| Nelson Smith

Start creating your own TFSA passive-income fund with Boston Pizza (TSX:BPF.UN), Choice Properties REIT (TSX:CHP.UN), and National Bank of Canada…

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The Fed’s Latest Rate Cut Makes Emerging Markets Attractive Investments

| Matt Smith

Buy Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to profit from the recovery of emerging markets.

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TFSA Investors: 2 Top Stocks With 4% Yields and Strong Upside Potential

| Andrew Walker

Sometimes great dividend stocks go on sale.

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The Cheapest Stock, by Far, on the TSX

| Nikhil Kumar

Toronto investment holding company E-L Financial Corp Ltd (TSX:ELF) has a strong balance sheet, trades at five times earnings, and…

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This Stock Could Make You a Billionaire

| Nikhil Kumar

The Westaim Corporation (TSXV:WED) has a strong balance sheet, trades at a low earnings and book value multiple, and insiders…

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Did You Fall Into This “Wealth-Destroying” Trap 3 Months Ago?

| Joey Frenette

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and other sorts of stocks are must-buys whenever Mr. Market gives you a market-wide sale like the…

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Will Fintech Zero-Fee Trades Boost TMX Group (TSX:X) Profit?

| Debra Ray

Increased volume on zero-commission equities trades resulting from fintech innovations should boost revenue for global exchanges like the TMX Group…

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2 Canadian Bank Stocks to Buy for Your Income Portfolio

| Victoria Hetherington

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and one other major Canadian financial institution are a good fit for a dividend portfolio.

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Bank Stocks

Bet on Artificial Intelligence in Banking With This Stock

| Ambrose O'Callaghan

Royal Bank of Canada (TSX:RY)(NYSE:RY) joined the robo-advisory party in late 2018. The popularity of the service should not be…

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Dividend Stocks

TFSA Dividend Investors: Should You Buy Enbridge (TSX:ENB) or Royal Bank (TSX:RY) Stock?

| Andrew Walker

Enbridge (TSX:ENB)(NYSE:ENB) and Royal Bank of Canada (TSX:RY)(NYSE:RY) are two of Canada's largest companies. Is one more attractive today for…

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RRSP Investors: 2 Cheap Dividend Stocks to Build Retirement Wealth

| Andrew Walker

Here's why Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and CIBC (TSX:CM)(NYSE:CM) might be interesting RRSP picks right now.

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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.