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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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Two of the top stocks in Canada, investors are often told to turn to these companies for their investments. Which…

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| Victoria Hetherington

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With it getting harder to find safe places to generate income, these two bank stocks can help pick up the…

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Will cannabis companies be able to replicate the success of some of the biggest names in technology and eventually pay…

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| Sneha Nahata

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3 High-Yield Bank Stocks to Buy Right Now

| Sneha Nahata

Squeeze safe and high yields from these TSX bank stocks .

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| Adam Othman

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TSX Investing: Should You Buy TD Bank (TSX:TD) or Scotiabank (TSX:BNS) Stock Today?

| Ambrose O'Callaghan

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| Kyle Walton

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1 TSX Stock That Outperformed Royal Bank of Canada (TSX:RY) and Toronto-Dominion (TSX:TD) in the Last Decade

| Aditya Raghunath

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| Andrew Walker

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| Adam Othman

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| Christopher Liew, CFA

Supplement your CPP pension and OAS payments with investment income from a bankable asset like the Toronto-Dominion Bank stock. It’s…

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2 Top Dividend Stocks Yielding 6% to Buy With a $6,000 TFSA Contribution

| Andrew Walker

These two top Canadian dividend stocks appear cheap today and offer 6% yields for a TFSA portfolio.

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| Kay Ng

Want to retire early? Here are two stocks that can help you retire early now WITHOUT a market crash. Of…

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Buy Alert: This Bank Stock on the TSX Can Double Your Investment

| Aditya Raghunath

Here's why Equitable Group (TSX:EQB) is a top buy right now.

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3 Top Dividend Stocks to Buy in August 2020

| Kay Ng

August 2020 is a great time to get a good mix of income and growth from this diversified group of…

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1 TSX Residential Lender Just Reported a Great Quarter and Pays a 6.8% Dividend

| Aditya Raghunath

You can look to buy beaten-down quality stocks such as First National (TSX:FN) to benefit from an attractive yield and…

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Retiring Soon? Here Are 2 Simple Ways to Avoid the 15% OAS Clawback

| Christopher Liew, CFA

Would-be retirees should get ready for 15% OAS clawback, which is an integral component of the pension program. The recovery…

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Cheap Bank Stocks: TD Bank (TSX:TD) and Another Name I’d Buy Right Now

| Joey Frenette

TD Bank (TSX:TD)(NYSE:TD) and another cheap Canadian bank stock that contrarians should back up the truck on right now.

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Bank Stocks

CRA UPDATE: Almost Everyone Can Claim This 2020 Tax Break

| Amy Legate-Wolfe

There are a lot of new benefits, but don't forget the old ones! The CRA has one in particular that…

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| Vineet Kulkarni

The factors that could trigger a crash have been there for months. The stock market rally will likely continue with…

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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.