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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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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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| David Jagielski

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a steal of a deal that may not last for long.

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Foreign investors went on a buying spree in Canada’s debt market in April but sold stock holdings. Their assessment might…

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| Aditya Raghunath

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| Victoria Hetherington

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| Kris Knutson

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| Kay Ng

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| Christopher Liew, CFA

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| Amy Legate-Wolfe

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| Andrew Button

After news that U.S. banks will be cutting their dividends, are Canadian banks like the Toronto Dominion Bank (TSX:TD)(NYSE:TD) safe?

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CRA Emergency Actions: 2 Ways to Lower Your Taxes!

| Adam Othman

The CRA’s tax-delay measures and CERB distributions are two major ways the department helped the people during the pandemic.

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| Jared Seguin

These two TSX financial stocks are perfect options for a dividend investing plan. Find out which big yields you can…

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| Kay Ng

The CERB is going to end. However, your passive income will keep coming if you do this.

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2 Stellar Bank Stocks To Buy Today

| Debra Ray

Canadian investors should buy high dividend bank stocks like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) on the Toronto Stock Exchange.

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Here’s the Max Amount of OAS and CPP Pension You Can Get

| Christopher Liew, CFA

Even if retirees receive the maximum OAS and CPP, chances of financial dislocation during retirement are high. The advice is…

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| Andrew Walker

A new market pullback gives investors a chance to buy top dividend stocks at cheap prices today.

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Got $5,000? Here’s How It Can Grow to $50,000!

| David Jagielski

Investing in a top bank stock like Royal Bank of Canada (TSX:RY)(NYSE:RY) is one of the safest ways to generate a…

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Dividend Stocks

2 Hot Bank Stocks to Buy in July

| Debra Ray

Canadian investors should consider buying the income stock, Royal Bank of Canada (TSX:RY)(NYSE:RY) for the 4.65% dividend yield.

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This Stock Has Generated 15% Annual Returns for 35 Years

| Ryan Vanzo

Fairfax Financial (TSX:FFH) is one of the best-performing TSX stocks in history. The best part is that the incredible gains…

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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.