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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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Ignore short-term headwinds and buy Toronto-Dominion Bank (TSX:TD)(NYSE:TD) today.

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| Chen Liu

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is the best stock for a TFSA or RRSP to retire wealthy.

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| Rahim Bhayani

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RBC (TSX:RY) Could Be Doomed If the Housing Market Crashes

| Christopher Liew, CFA

Even with a large exposure to the mortgage market, the Royal Bank of Canada stock can survive a housing market…

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Warren Buffett’s Advice: A Down Market Equals Opportunity

| Adam Othman

Royal Bank of Canada and Bank of Nova Scotia stocks align with Warren Buffett's advice about recession and opportunities.

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| Matt Smith

Forget about the short-sellers and fears of a recession; buy Royal Bank of Canada (TSX:RY)(NYSE:RY) today and lock in a…

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BMO (TSX:BMO) Has an Insane Dividend Streak of 190 Years

| Christopher Liew, CFA

The 190-year dividend history of the Bank of Montreal stock, Canada’s oldest bank, is unmatched. You might find it insane,…

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TFSA Investor: Should You Buy Royal Bank of Canada (TSX:RY) or Bank of Montreal (TSX:BMO) Stock Today?

| Andrew Walker

Canadian banks often hold anchor positions in dividend-focused portfolios. Is Royal Bank of Canada (TSX:RY) (NYSE:RY) or Bank of Montreal…

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TFSA Users: 99% of You Are Making This Huge Mistake

| Chen Liu

Most people use the TFSA to invest in passive income stocks but it should be used to invest in stocks…

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2 Banks That Could Make You Rich During a Recession

| Christopher Liew, CFA

No one wants a recession. But if it comes, there is a buying opportunity in case the prices of the…

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Canada Election: What to Expect for the TSX

| Ambrose O'Callaghan

This election has been contentious, but experts from Royal Bank of Canada (TSX:RY)(NYSE:RY) and other banks expect fiscal stability no…

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Add This Defensive Bank to Your Portfolio for 2020

| Demetris Afxentiou

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) may no longer be the most international bank in Canada, but it remains a solid…

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TFSA Investors: These 3 Bank Stocks Are Too Cheap to Ignore!

| Andrew Button

Small banks like Laurentian Bank (TSX:LB) are getting extremely cheap.

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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.